Investment idea | Merck & Co.

Investors underestimate the depth of Merck's pipeline and competitive advantages. They also incorrectly expect the worst-case scenario for management's capital allocation.

“Pharmaceuticals” by DALL•E

Summary

• Recommendation: Add Merck & Co., Inc. (NYSE: MRK — $294bn) at $116 per share.

• Thesis: Investors underestimate the depth of Merck's pipeline and competitive advantages. They also incorrectly expect the worst-case scenario for management's capital allocation.

• Valuation: Intrinsic value is closer to $152–159 with a 31-37% up…