Merck downgraded at Wells Fargo on valuation

Merck (NYSE:MRK) shares inched lower in the pre-market trading Monday after Wells Fargo downgraded the pharma giant from Overweight to Equal Weight, citing concerns about its valuation.

The analyst Mohit Bansal argues that MRK is now "fairly valued" after generating 40% in returns from the 2021-year end while NYSE Arca Pharmaceutical Index (DRG) has dropped 4%.

The downgrade comes on the day rival Pfizer (PFE) acquired Seagen (SGEN) for $43B after reports indicated last year that Merck (MRK) was also on the lookout for a buyout deal with the cancer drugmaker.

Bansal argues that the firm's previous bullish view was based on the undervaluation of the company's pharma business and underappreciation of its cardiovascular pipeline.

The analyst who trims Merck (MRK) price target to $115 from $120 per share also notes that the recent appreciation of MRK is "fundamental" as clarity over its pipeline emerges.

However, he argues that "the stock may be priced to perfection," with shares trading at ~16x of 2023 earnings amid concerns over a looming patent cliff for Merck's (MRK) blockbuster cancer therapy Keytruda.

Last Monday, MRK posted the biggest one-day gain since June 2022 after disclosing complete Phase 3 results for sotatercept, a treatment targeted at blood vessel disorder pulmonary arterial hypertension (PAH).

Seeking Alpha contributor, BiotechValley Insights issued a Buy rating on MRK in February, expecting a positive readout.