MRK

Merck & Co., Inc.NYSE
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Valuation snapshot

Above base case

Price is between the base and bull cases.

Price as of Sep 4, 2026 · Valuation Sep 5, 2026

$152.34
price
$117.50
base IV/share
Track record
$43.9B
Net debt

From reported financials.

What drives MRK's base case?

base-case thesis

Merck enters this forecast on the back of modest 1.3% revenue growth in 2025 and guidance for 2%-4% growth in 2026, with newer products like Winrevair and Capvaxive already growing 75% and 40% year over year in the most recent quarter. This scenario assumes that pace continues enough to mostly offset Gardasil's ongoing China-driven weakness through 2027, before Keytruda's 2028 patent expiry causes a real but partial revenue setback that the company's subcutaneous reformulation and pipeline (including the newly acquired Terns cancer drug) cushion rather than eliminate. Profitability holds roughly steady near current levels, and growth resumes at a moderate pace by 2029-2030 as the new-product portfolio matures.

What shapes the assumptions

  • 2026 guidance reflects modest continued growth

    FY2026 revenue guidance of $66.3B-$67.3B (+2%-4%)

    Raises revenue growth

  • New launches (Winrevair, Capvaxive) scale quickly

    Winrevair +75% YoY and Capvaxive +40% YoY in Q2 2026

    Raises revenue growth

  • Keytruda 2028 cliff partially cushioned by QLEX conversion

    Keytruda ~49% of 2025 revenue

    Lowers revenue growth

  • Operating margin holds near recent reported level

    GAAP operating margin improved from 31.0% (2024) to 32.6% (2025)

    Informs operating margin

  • Continued bolt-on M&A (Terns, Cidara) funds pipeline replacement

    $6.7B Terns acquisition plus ~$20B 2025-2029 capex plan

    Raises reinvestment

Each driver links a business metric to the forecast assumption it shapes — the basis for this case, not investment advice.

Why the gap?

The market is pricing this as if revenue grows 5.3% a year. Over the last 5 years it grew 8.7% a year — so the price assumes less than it has delivered.

What else could explain it?
Or, holding growth steady
the price is also consistent with a 40.2% operating margin, against the 32.0% assumed here.
How confident is this estimate?
Robustness 44.0/10 (Fragile) — some of any gap is our own uncertainty rather than disagreement.
What would change the answer?
Which assumption this valuation swings on, and by how much.

Many combinations of assumptions reproduce the same price. These are ways to read what the market might be expecting, not the market's actual view. How this is worked out

Research & assumptions

Inspect the valuation thesis, cases, risks, evidence, and model inputs.

Three independently researched cases generated automatically from published financials. Every assumption is justified and cited; the discount rate is computed from researched market inputs.

Company value drivers

Ranked operating metrics and the valuation assumptions they influence.

1. Keytruda share of total revenue

Measures how concentrated Merck's revenue is in its top cancer immunotherapy, which faces core-patent expiry in 2028; the single biggest determinant of both near-term growth and terminal-value risk.

48.8%

derived
Keytruda share of total revenueRevenue forecastforecast revenue by year → IV (mixed)Keytruda share of total revenueTerminal valueterminal value → IV (down)
Merck Q4/FY2025 Earnings Release (8-K Exhibit)

2. Gardasil/Gardasil 9 annual revenue

Tracks Merck's HPV vaccine franchise, whose China-driven collapse is currently the clearest drag on total company growth.

$5.2B

reported
Gardasil/Gardasil 9 annual revenueRevenue forecastforecast revenue by year → IV (down)
Merck Q4/FY2025 Earnings Release (8-K Exhibit)

3. Combined Winrevair + Capvaxive revenue, quarterly

Combined quarterly sales of Merck's two newest non-oncology growth products, the clearest evidence of whether new launches can replace Keytruda/Gardasil declines.

$772M

reported
Combined Winrevair + Capvaxive revenue, quarterlyRevenue forecastforecast revenue by year → IV (up)Combined Winrevair + Capvaxive revenue, quarterlyOperating profitforecast operating income → IV (up)
Merck Second-Quarter 2026 Earnings Presentation

4. R&D expense as % of revenue, full year

Tracks how much of revenue Merck plows back into research and business development, the primary funding source for pipeline-driven reinvestment and future growth.

24.3%

derived
R&D expense as % of revenue, full yearFree cash flowreinvestment / free cash flow build → IV (up)R&D expense as % of revenue, full yearOperating profitforecast operating income → IV (down)
Merck FY2025 Form 10-K

5. GAAP operating margin, full year

Overall profitability of the reported business, the base off which the operating-margin assumption in the DCF is anchored.

32.6%

derived
GAAP operating margin, full yearOperating profitforecast operating income → IV (mixed)
Merck FY2025 Form 10-K

Base inputs from financials

source period →

Base revenue (TTM)

$66.6B

Diluted shares

2,470,000,000

Net cash

-$43.9B

Bear

low confidence

$72.51

IV / share

-52.4% vs $152.34

Enterprise

$223B

Equity

$179.1B

Discount rate

5.7%

Cost of equity

6.0%

Where the value comes from

Explicit cash flows
$18.44
Terminal value
$71.85
Net cash
-$17.79
Intrinsic value / share
$72.51

99.1% of the value rests on the terminal value — high dependency. A small change to terminal growth moves the valuation a lot — see terminal growth below.

Revenue growth1.5% → 1.0% → -12.0% → -6.0% → 0.5%medium

How derived: Starts from Merck's own FY2026 guidance of 2%-4% growth but takes the low end given Gardasil's 39% 2025 decline and management's statement that Gardasil is 'not expected to improve' in 2026, then models an accelerated Keytruda erosion around its Dec-2028 core-patent expiry (≈49% of 2025 revenue at risk) with only limited offset from new launches before growth stabilizes near zero.

Why this confidence: Management itself guides only 2%-4% growth for 2026, not a decline, limiting confidence in an immediate downturn , The forecast horizon crosses the Keytruda 2028 patent cliff, an unprecedented single-product event with no direct Merck history to calibrate against , Gardasil's China-driven collapse is already observed across three consecutive reported quarters, not speculative

Evidence for

Evidence against

Operating margin27.0%medium

How derived: Begins at FY2025's reported GAAP operating margin of 32.6% ($21.218B/$65.011B per the 10-K) and compresses it as Keytruda (the highest-margin product) shrinks as a share of the mix, Medicare drug-price negotiation expands, and China/EM vaccine pricing pressure persists.

Why this confidence: Only two clean, non-acquisition-distorted years of margin history (2024-2025) exist since 2023 was a one-off IPR&D-charge anomaly , Direction of Medicare price-negotiation and China vaccine pricing pressure is well documented in company disclosures , Margin depends heavily on future M&A charges, which by nature cannot be forecast precisely

Evidence for

Evidence against

  • GAAP operating margin actually improved from 31.0% in 2024 to 32.6% in 2025 as one-off 2023 IPR&D charges rolled off, showing underlying margin resilience.[Merck FY2025 Form 10-K]· primary
Tax rate18.0%low

How derived: Starts from the FY2025 non-GAAP effective tax rate of 14.4% and adds roughly 3.5 points for the phased-in OECD Pillar Two 15% country-by-country minimum tax eroding the benefit of Merck's low-tax Irish/Puerto Rican manufacturing base, plus a margin of safety for possible U.S. tax-policy shifts.

Why this confidence: Effective tax rate is highly sensitive to one-off, hard-to-predict acquisition/IPR&D charges, as seen in 2023's 80.0% spike , OECD Pillar Two's implementation timeline and country adoption are publicly legislated and trackable , Only a single recent clean-year disclosure (FY2025 non-GAAP) anchors the estimate; no long multi-year clean GAAP trend exists

No tracked driver measures this assumption yet.

Evidence for

  • Merck's GAAP effective tax rate has been volatile and occasionally very high (80.0% in 2023) when non-deductible acquisition IPR&D charges hit, showing the rate is not always low.[Macrotrends - Merck Income Taxes]· secondary

Evidence against

  • Merck's full-year 2025 non-GAAP effective tax rate was 14.4%, in line with 2022's clean-year rate of 11.7%, indicating a fairly stable underlying low-rate structure absent one-off charges.[Merck Q4/FY2025 earnings release (8-K exhibit)]· primary
Reinvestment rate22.0%medium

How derived: Uses reported 2025 capex of $4.1B against an estimated FY2025 NOPAT of roughly $18B (operating income $21.2B x (1-14.4% tax)) to get a capex-only reinvestment rate near 23%, then trims it slightly to reflect a bear-case pullback in discretionary bolt-on M&A as management prioritizes the dividend and cost control under margin pressure.

Why this confidence: Capex guidance is explicitly company-disclosed on a multi-year basis, giving a firm anchor , M&A spending, the larger and more variable component of reinvestment, is inherently unpredictable deal-by-deal

Evidence for

  • Merck's stated capital-projects plan is about $20B over 2025-2029 (~$4B/year), a level consistent with maintenance-level rather than aggressive expansionary capex.[Sci-Tech-Today - Merck & Co. Statistics]· secondary

Evidence against

Terminal growth1.5%low

How derived: Set below the ~2% long-run U.S. nominal GDP/CPI trend to reflect a bear-case world where biosimilar competition to Keytruda, continued Gardasil weakness in China, and expanding Medicare price negotiation permanently cap Merck's pricing power even after the forecast window.

Why this confidence: Terminal-year assumptions are the least verifiable part of any DCF, extending a decade or more out , The scale of Keytruda's revenue concentration and its 2028 cliff date are both concretely disclosed

Measured by

Evidence for

Evidence against

Base

low confidence

$117.50

IV / share

-22.9% vs $152.34

Enterprise

$334.2B

Equity

$290.2B

Discount rate

5.8%

Cost of equity

6.0%

Where the value comes from

Explicit cash flows
$20.58
Terminal value
$114.70
Net cash
-$17.79
Intrinsic value / share
$117.50

97.6% of the value rests on the terminal value — high dependency. A small change to terminal growth moves the valuation a lot — see terminal growth below.

Revenue growth3.0% → 3.0% → -6.0% → -1.0% → 2.5%medium

How derived: Takes the midpoint of Merck's own FY2026 guidance (2%-4%) for the first year, assumes similar modest growth in 2027 as Winrevair/Capvaxive/Enflonsia ramp (Winrevair +75% YoY, Capvaxive +40% YoY in Q2 2026) roughly offset continued Gardasil weakness, then models a mid-single-digit revenue decline in 2028 as the Keytruda compound patent expires (~49% of 2025 revenue exposed) partly cushioned by the QLEX subcutaneous-conversion strategy, followed by stabilization and a return to modest growth by 2030 as new launches mature.

Why this confidence: Near-term (2026-2027) growth is anchored directly to management's own published guidance , The 2028 Keytruda LOE magnitude has no historical precedent of this size for Merck to calibrate against , New-launch ramp data (Winrevair, Capvaxive) spans only a few quarters

Price implies: 5.3% vs our 0.3% — one of several sets that fit this price

Evidence for

Evidence against

  • Gardasil sales fell 39% in 2025 and a further 22% in Q1 2026 with no expected recovery, a larger and more sustained drag than the base case's modest net growth implies.[Yahoo Finance/Zacks - Weak Gardasil Sales]· secondary
Operating margin32.0%medium

How derived: Holds roughly flat to the FY2025 reported GAAP operating margin of 32.6%, assuming mix shift away from Keytruda is roughly offset by scale efficiencies in new cardiometabolic/vaccine launches and normalization of one-off deal charges after the 2026 Terns/Cidara upfronts roll off.

Why this confidence: Two consecutive years of 10-K-reported margin data (2024, 2025) both land in a tight 31%-33% range , One-time acquisition charges (Terns, Cidara) make single-year reported margins noisy

Price implies: 40.2% vs our 32.0% — one of several sets that fit this price

Evidence for

  • GAAP operating margin improved from 31.0% (2024) to 32.6% (2025) as one-off 2023 IPR&D charges rolled off, showing an underlying improving trend.[Merck FY2025 Form 10-K]· primary

Evidence against

  • FY2026 operating expense guidance of $42.0B-$42.7B includes a one-time $5.8B Terns upfront charge that will compress 2026 reported margins materially versus 2025.[Merck Q2 2026 results summary]· secondary
Tax rate15.0%medium

How derived: Uses the FY2025 non-GAAP effective tax rate of 14.4%, rounded up slightly to 15% to allow for gradual OECD Pillar Two minimum-tax phase-in over the forecast window.

Why this confidence: Primary-source non-GAAP disclosure for the most recent full year is directly available , Merck is actively acquiring companies (Terns, Cidara) in 2026, which historically has caused one-off tax-rate spikes

No tracked driver measures this assumption yet.

Evidence for

Evidence against

  • GAAP effective tax rate hit 80.0% in 2023 due to non-deductible acquisition charges, showing the rate can spike well above the base-case assumption in deal-heavy years, and Merck is currently deal-active (Terns, Cidara) in 2026.[Macrotrends - Merck Income Taxes]· secondary
Reinvestment rate35.0%low

How derived: Combines the disclosed $4.1B 2025 capex (~23% of an estimated $18B NOPAT) with an allowance for ongoing bolt-on business development of the kind seen in the $6.7B Terns and Cidara deals, reflecting Merck's stated strategy of using M&A to rebuild its pipeline ahead of the Keytruda cliff.

Why this confidence: Capex plan is explicitly disclosed by management out to 2029 , M&A spending, the larger and more variable component of reinvestment, is inherently deal-by-deal and hard to forecast

Evidence for

Evidence against

  • Merck cut FY2026 non-GAAP EPS guidance roughly in half (to $2.66-$2.76 from $5.04-$5.16) because of acquisition charges, signaling reinvestment could overshoot what shareholders will tolerate.[Merck Q2 2026 results summary]· secondary
Terminal growth2.5%medium

How derived: Set near long-run developed-market nominal GDP growth (~2%-2.5%), consistent with a mature pharma company successfully replacing Keytruda's decline with new-launch and pipeline revenue at an industry-average rate, in line with management's stated ambition of $70B+ revenue by the mid-2030s.

Why this confidence: Terminal growth is a decade-plus forecast with no way to directly verify against current data , Assumption is anchored to a standard macro proxy (long-run nominal GDP) rather than a company-specific guess

Measured by

Evidence for

Evidence against

Bull

low confidence

$164.84

IV / share

+8.2% vs $152.34

Enterprise

$451.1B

Equity

$407.2B

Discount rate

5.8%

Cost of equity

6.0%

Where the value comes from

Explicit cash flows
$21.12
Terminal value
$161.52
Net cash
-$17.79
Intrinsic value / share
$164.84

98.0% of the value rests on the terminal value — high dependency. A small change to terminal growth moves the valuation a lot — see terminal growth below.

Revenue growth5.0% → 5.0% → -2.0% → 4.0% → 5.0%low

How derived: Assumes above-guidance growth in 2026-2027 as Winrevair, Capvaxive and Enflonsia continue scaling at the double-digit rates seen in Q2 2026, a shallow (not sharply negative) dip in 2028 as Merck's targeted 30%-40% patient conversion to subcutaneous Keytruda QLEX plus method-of-use/manufacturing patents extending into 2029 blunt the compound-patent cliff, and a return to mid-single-digit growth in 2029-2030 as the oncology pipeline (including the newly acquired Terns CML asset) and vaccines scale toward management's own $70B+ mid-2030s revenue aspiration.

Why this confidence: Relies on a still-early (few-quarters-old) launch ramp and an unproven patient-conversion target (QLEX) extrapolated over five years , Management's own $70B mid-2030s aspiration provides some directional support for above-GDP growth , No historical precedent exists for Merck defending a franchise this large against biosimilar entry

Evidence for

Evidence against

  • Merck continues to plan around the earlier, more conservative December-2028 core-patent expiry date for Keytruda as its baseline rather than assuming its 2029 method-of-use patents will hold, implying management is less bullish than this case.[Patsnap - Keytruda Patent Cliff 2028: Merck's Strategy]· secondary
Operating margin37.0%low

How derived: Extends the FY2025 reported 32.6% GAAP operating margin upward on the assumption that Winrevair, Capvaxive and the QLEX-defended Keytruda franchise carry margins similar to or better than the legacy portfolio, combined with cost synergies as one-off 2026 acquisition charges (Terns, Cidara) fully roll off by 2027-2028.

Why this confidence: Assumes new, higher-margin products scale faster than the R&D/SG&A investment needed to support them, which is not yet proven at scale , Recent two-year reported margin trend (2024-2025) is directionally supportive of expansion

Evidence for

  • GAAP operating margin already expanded from 31.0% (2024) to 32.6% (2025) even while absorbing heavy R&D spend, showing operating leverage is already emerging.[Merck FY2025 Form 10-K]· primary

Evidence against

Tax rate13.0%low

How derived: Assumes Merck sustains a rate near the low end of its recent clean-year range (11.7% in 2022, 14.4% non-GAAP in 2025) by preserving R&D tax credits and its Ireland/Puerto Rico manufacturing footprint, with only limited erosion from OECD Pillar Two.

Why this confidence: Requires OECD Pillar Two to have minimal effect, which is a public policy trend rather than a company-specific input , Directly grounded in Merck's own recently reported clean-year tax rates

No tracked driver measures this assumption yet.

Evidence for

  • Merck's FY2022 effective tax rate (a year without major acquisition distortions) was 11.7%, below the 2025 non-GAAP rate of 14.4%, showing the low end is achievable.[Macrotrends - Merck Income Taxes]· secondary

Evidence against

  • OECD Pillar Two's global 15% minimum tax is being phased in across the jurisdictions Merck manufactures in, which structurally works against sustaining an effective rate this low.[Macrotrends - Merck Income Taxes]· estimate
Reinvestment rate48.0%low

How derived: Assumes Merck continues aggressive bolt-on M&A at a pace similar to the $6.7B Terns and Cidara deals in 2026 on top of its disclosed ~$4B/year capex plan, reflecting a deliberate strategy of buying growth to hit the CEO's stated $70B+ mid-2030s revenue target.

Why this confidence: Assumes deal flow and pricing similar to 2026's unusually active M&A year continues for five straight years, which is not guaranteed , Grounded in a real, recently completed, large disclosed transaction rather than a hypothetical

Evidence for

  • Merck spent $6.7B to acquire Terns Pharmaceuticals in 2026 alone (on top of the Cidara deal) to build a post-Keytruda growth platform, citing 'the broadest and widest pipeline we've had in years.'[BioSpace - Merck to Buy Terns for $6.7B]· secondary

Evidence against

  • Merck cut FY2026 non-GAAP EPS guidance roughly in half specifically because of these acquisition upfront charges, showing heavy reinvestment carries a real, disclosed near-term earnings cost that could limit how much further management pushes it.[Merck Q2 2026 results summary]· secondary
Terminal growth3.2%low

How derived: Set modestly above long-run nominal GDP growth to reflect a bull case where Merck's pipeline (oncology, cardiometabolic, vaccines) sustains above-average growth in perpetuity, consistent with the CEO's public target of more than $70B in annual revenue by the middle of the next decade versus $65.0B in 2025.

Why this confidence: Terminal-year assumptions this far out cannot be verified against current data , Above-GDP terminal growth in perpetuity is aggressive relative to standard DCF convention , Directionally consistent with management's own stated long-term revenue ambition

Measured by

Evidence for

Evidence against

Valuation robustness

reliability of the estimate, not a stock rating

44 / 100 · Fragile

Scenario dispersion6.1
Terminal-value dependency0.2
Historical stability1.4
Margin predictabilityn/a
Forecast visibility5.4
Evidence quality10

Formula v1.0.0. Higher means a more reliable estimate — not a recommendation.

Quality checks

Automated model-risk flags — warnings, not recommendations.

  • 98% of the intrinsic value rests on the terminal value — a small change to terminal growth moves the valuation a lot.terminal growth
  • The reinvestment assumption is low-confidence.reinvestment

Per-share economics

Business growth after changes in the diluted share count.

PeriodRevenue growthFCF/shareFCF/share growthSharesShare growth
Q3 20244.4%3.3525.1%2.54B-0.2%
Q1 2025-1.6%0.46-47.2%2.53B-0.5%
Q2 2025-1.9%1.01-47.2%2.51B-1.2%
Q3 20253.7%2.74-18.3%2.5B-1.7%
Q1 20264.9%1.18155.7%2.47B-2.3%
Q2 20265.1%1.8180.1%2.47B-1.7%

Valuation history every run

Sep 5, 2026Bear$72.51Bull$164.84Base$117.50Price$150.31
$65.12$91.90$118.68$145.45$172.23Sep 5, 2026

History builds as the valuation is recalculated — this is the first recorded run.

Market inputs researched

Risk-free rate

Uses the spot 10-year U.S. Treasury yield as the risk-free rate proxy for a USD-denominated DCF.

4.8%
high
Beta

Uses the 5-year weekly beta as reported by Investing.com Pro, reflecting Merck's historically defensive, low-volatility profile as a large-cap pharma stock.

0.28
medium
Equity risk premium

Uses Damodaran's start-of-2026 implied equity risk premium for the S&P 500 as the market ERP input.

4.2%
high
Share price

Latest quoted trading price as of September 4, 2026.

150.31
high
Cost of debt

Uses the yield-to-maturity observed on Merck's outstanding investment-grade bonds (approximately 4.9%-5.0%), consistent with its S&P A+ rating, as a proxy for its current pre-tax cost of new debt.

5.0%
medium
Researched byClaude Sonnet 5
Why the model matters →

Generated 9/5/2026, 4:32:02 PM · pipeline v1.2.0