Merck's new medicines should support growth, but replacing Keytruda's profits will take longer than replacing its sales. My October 2027 target is $126.38, based on improving earnings but a lower valuation as the patent transition approaches.
Key points
- $126.38 a share is my October 2027 target; initiate Sell.
- 50% of Q2 2026 sales came from the Keytruda family.
- $9.03 a share in 2027 is my adjusted earnings forecast, excluding acquisition charges.
The call
The market is too optimistic about replacing its biggest earner. At my 14-times earnings multiple, today's price requires roughly $73.7 billion of 2027 sales, versus my $69.5 billion forecast. Alternatively, investors must keep paying 15.8 times my earnings forecast as the main patent expiry approaches.
Quarterly sales remain concentrated in Keytruda ($ billions)Source: June 2026 10-Q, filed August 7, 2026; Q2 2026 sales, rounded.
I expect growth, not a collapse. My 2027 forecast assumes Keytruda sales of $35.5 billion and Winrevair sales of $3.6 billion. But royalties limit launch profits, and temporary research funding ends. October earnings and 2027 launch results should expose the gap between clinical success and replacement earnings.
Valuation
| My forecast or assumption | Figure |
|---|
| 2027 revenue | $69.5 billion |
| 2027 adjusted gross margin | 82.2% |
| 2027 recurring operating expenses | $29.1 billion |
| 2027 adjusted earnings per share | $9.03 |
| October 2027 earnings multiple | 14 times |
| October 2027 target | $126.38 a share |
Earnings also assume $1.7 billion of 2027 financing and other expense, a 16% tax rate and 2.45 billion diluted shares; acquisition charges and intangible amortization, the accounting expense for purchased assets, are excluded, but stock compensation remains.
Fourteen times reflects the approaching patent transition, pricing pressure and expensive acquisition financing.
My slower-launch scenario produces $93.68 a share versus $174.22 with faster launches, supporting Sell rather than a high-conviction bearish bet.
Risks
- Faster launches could defeat my forecast; watch prescriptions and paid insurance coverage, not distributor purchases.
- Stronger cancer-trial results could sustain a higher multiple; watch complete melanoma data and filing progress.
- Cash generation could improve faster; watch debt repayment and research costs without outside funding.
What would change my mind
I would reconsider if 2027 guidance supports adjusted earnings above $10 a share without new acquisition charges and sustained launch growth rather than inventory purchases.