Why Is Merck Stock Still Undervalued After An 80% Surge?

You do not expect a pharmaceutical giant with a $376 billion market cap to put up numbers that make growth investors blush. Yet over the last 12 months, Merck (MRK) handed investors an 80% return, lapping the S&P 500. The apex occurred yesterday, August 19, 2026, when the stock surged to all-time highs.

So, what caused the recent breakout? The immediate catalyst was clinical success with the experimental mRNA cancer vaccine developed with Moderna (MRNA). This milestone demonstrated significant efficacy, prompting a large influx of buying volume based on immediate oncology revenue potential. However, yesterday’s news merely validates a broader strategy. The real driver behind the annual return is how methodically Merck answered the primary question keeping shareholders awake at night: What happens after the KEYTRUDA patent cliff?

For years, the looming loss of exclusivity for the blockbuster drug KEYTRUDA was a serious overhang. The company’s management answered this anxiety with a steady drumbeat of clinical and regulatory wins. The pipeline delivered tangible results, reframing the company from one facing a patent cliff to one building a reliable bridge for consistent earnings growth.

What did the pipeline actually deliver?

The capstone event was the FDA approval of LIPFENDRA. As the first oral PCSK9 inhibitor for high cholesterol, it disrupts a market dominated by injectables. Clinical data shows this daily pill lowers LDL cholesterol by up to 60% when added to a statin. Alongside the recent mRNA cancer vaccine data, Merck also announced positive Phase III results for sac-TMT in endometrial cancer and tulisokibart in ulcerative colitis. Pipeline question marks became definitive check marks, proving the research engine remains highly productive.

How big is this new commercial plan?

With clinical data firming up, management finally quantified the future. They project a pipeline with greater than $70 billion of commercial opportunity spread across more than 20 new products. For a market obsessed with the impending KEYTRUDA revenue gap, this figure acts as a powerful counter-narrative. The substantial stock revaluation shows Wall Street now firmly believes this projection.

Is the new valuation justified compared to peers?

Valuation provides the true test of this pivot. All forward peer valuations are based on consensus 2027 estimates on an adjusted EPS basis. At $152 per share against expected adjusted earnings of $9.56, Merck trades at just 16x forward earnings. Compare that across the peer landscape. While Pfizer (PFE) trades at a depressed 9.6x multiple and AbbVie (ABBV) trades at 16.4x, higher-growth peers command meaningful premiums. Johnson & Johnson (JNJ) trades at 21.5x forward earnings, and Eli Lilly (LLY) commands 27x. Despite surging over 80% in the past year, Merck’s 16x multiple highlights that the stock remains undervalued relative to top-tier peers, offering further upside if execution holds.

Can Merck actually sell LIPFENDRA?

Getting a drug approved is one thing, but getting it widely prescribed is another. The history of injectable PCSK9 inhibitors is marked by slow patient adoption, particularly in primary care settings. Analysts are questioning the pace of initial access and whether a major outcomes trial will serve as the commercial tipping point. Merck is aggressively betting on total market expansion, not just taking existing market share.

Has the sales pitch been proven?

Clinical development risk has largely faded, replaced by the less predictable risk of global commercial execution. The underlying science behind the mRNA cancer vaccine is now validated by late-stage clinical data, while the broader pipeline continues to win official validation from regulators. Now, the company must execute its commercialization strategy perfectly to justify the new valuation.

The Bottom Line

Investors should view Merck not as a business facing an impending patent cliff, but as a de-risked commercial leader with substantial pipeline visibility. In our view, Merck remains fundamentally undervalued at 16x 2027 adjusted earnings compared to its peer group, offering an attractive risk-reward profile as execution unfolds.

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