Goldman Sachs upgraded shares of Merck (NYSE: MRK) to buy from neutral and named it to its Americas Conviction List of favorite stocks on Monday because of potential booming sales from the drugmaker's blockbuster lung cancer treatment Keytruda.
"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," wrote Jami Rubin in a note to clients.
Rubin's 12-month price target of $73 calls for a 24% increase for the shares from Friday's close.
Earlier this month, a late-stage trial showed Keytruda allowed previously untreated lung cancer patients to live longer. The drug is already approved to treat patients with certain forms of lung cancer.
"Our refreshed analysis points to significant margin upside from product mix shift with much higher Keytruda sales than we had previously modeled," stated the Goldman note.
"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."
Merck shares are up 8% this month through Friday on the successful Keytruda trial. However, the Dow Jones industrial average member is still down by 5% over the last 12 months.
Shares in Merck are ahead 83 cents, or 1.4%, to $59.66, within a 52-week trading range of $52.83 to $66.41
