Merck Just Received an Upgrade from Goldman Sachs for This Reason

Shares of Merck were on the rise in Monday trading after the pharmaceutical giant received an upgrade and some optimistic words from a Goldman Sachs analyst.

According to the firm, Merck is one of their all time favorite stocks because of the company’s blockbuster drug Keytruda’s lung cancer breakthrough.

Analyst Jami Rubin of Goldman wrote in a note to clients, “We believe the narrative for this company is quickly changing with the success of Keytruda (a potential $16bn asset by 2025E) driving a significant shift in product mix from a large primary care evolving into a specialty biopharma.”

She also wrote, “Our refreshed analysis points to significant margin upside from product mix shift with much higher Keytruda sales than we had previously modeled. We believe MRK operating margins could go from 32.5% in 2017 to 40% by 2025E and come close to other LC specialty biotech names, with that inflection point starting to happen 2H:18.”

It was earlier this month that a late stage trial revealed that Keytruda allowed previously untreated lung cancer patients to live longer.

Goldman not only upgraded the stock from “neutral” to “buy” but also added it to America’s Conviction List of favorite stocks.

The analyst has a 12-month price target of $73 on the stock.

“We believe there is trapped value in the stock based on our SOTP (sum of the parts) analysis that implies a $73 value driven by Keytruda and Animal Health,” Rubin noted.

Disclaimer: We have no position in Merck & Co., Inc. (NYSE: MRK) and have not been compensated for this article.