Merck's new launches can offset the 2028 Keytruda patent loss, but clean earnings near $8.76 leave the stock at 16 times. I see balanced risk and reward into 2027.
Key points
- $8.37B of Keytruda family sales in Q2 FY26 grew 4% ex currency and still funds the pipeline.
- $8.76 per share of clean FY26 operating EPS rebuilds the $2.71 guidance midpoint after adding back $6.05 of deal charges.
- $53.9B of carrying debt at Jun 30 FY26 limits FY26 buybacks to about $3.0B while launches scale.
The call
Fair value is the right read at $142.82. The price pays 16.3 times my $8.76 per share of clean operating earnings. That price requires steady growth into the Keytruda patent loss in Dec 2028 and through FY29.
Quarterly revenue holds near $16-17B ($ billions)- Reported revenue
- My forecasts
SEC XBRL via Rallies to Q2 FY26; Q3-Q4 FY26E are author's forecasts. As of Oct 8, 2026.
Launches can fill much of the gap but not reprice the stock yet. I expect $69.5B of revenue in FY27. I expect $9.10 per share of operating earnings in FY27. Winrevair for lung pressure growth and Qlex under skin shot uptake offset vaccine softness.
Valuation
| Driver | Estimate |
|---|
| 2027 revenue | $69.5 billion in FY27 |
| 2027 operating EPS | $9.10 per share in FY27 |
| Target multiple | 15.5 times earnings in FY27 |
| 12 month target | $141.00 per share by Oct 2027 |
| A 15.5 multiple fits a quality drug maker facing a known FY28 patent loss. It sits below faster growers and above weaker pipelines. With 1.3% downside plus a 2.4% yield, risk and reward look balanced. | |
Risks
- Keytruda copies called biosimilars arrive before FY28 and cut oncology sales in FY27. Watch Argentina sales and 10-Q biosimilar notes each quarter.
- Winrevair and Qlex scripts stall on access limits and launch sales miss pace in FY27. Watch new prescriptions and claims each quarter.
- Debt stays near $53.9B and deal charges cut buybacks below plan in FY27. Watch cash flow statements and repurchase notes each quarter.
What would change my mind
Strong Qlex conversion and Winrevair scripts that lift FY27 revenue above $72.0B in FY27 would make me more positive.