Merck Vs. Pfizer: Why Analyst Upgrades One Pharmaceutical Stock, While Downgrading Another

The health care sector held up relatively well in a difficult year for stocks in 2022. On Wednesday, one analyst adjusted his coverage of two large cap pharmaceutical stocks heading into what could be a volatile 2023.

The Analyst: Bank of America analyst Geoff Meacham upgraded Merck & Co Inc (NYSE: MRK) from Neutral to Buy and raised his price target from $110 to $130. Meacham also downgraded Pfizer Inc. (NYSE: PFE) from Buy to Neutral and reiterated his $60 price target.

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The Thesis: In the Merck upgrade note, Meacham said the company demonstrated strong commercial execution in a difficult macroeconomic environment and continued to generate impressive revenue growth.

"Indeed, at a time where the macro backdrop could remain uncertain throughout most of 2023, Merck's consistent revenue upside (1Q22: +$1.3B; 2Q22: +$751M; 3Q22: +$490M) should be highly valued, in our view," Meacham said.

At the same time, Meacham warned Keytruda concentration remained a risk for investors given the drug was on track to account for greater than 45% of Merck's total revenue by 2025.

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Meacham said Pfizer had now become a "show-me" stock with a lot to prove in a post-COVID-19 pandemic world. Pfizer is approaching loss of exclusivity on drugs representing about $17 billion in sales from 2025 through 2030. Pfizer has guided for drug launches worth a collective $20 billion in new revenue by 2030, but Meacham said additional upside for the stock would likely be driven largely by product launches that occur in 2024 and beyond.

Benzinga's Take: Pfizer and Merck are two of the biggest and best blue chip investments in the defensive health care sector, and both companies will likely make excellent long-term investments at current levels. However, Merck may pay off more for investors in 2023 given Pfizer's lack of meaningful near-term catalysts ahead.

Photo: Gorodenkoff via Shutterstock