MRK
MRK
Accumulate 2026-04-27
Model
DCF
Price at Report
$111.90
Base IV
$147.86
Bear IV
$78.19
Bull IV
$269.04
Entry Zone: 74-136 · Sell Above: 229
Bore Family Office
Valuation Report — Merck & Co., Inc. (MRK) • April 27, 2026
Unlevered DCF (FCFF @ WACC) • Discount Rate: 7.00% • Current Price: $111.90
Prepared by Lurch • Bore Family Office • Data: Finnhub, StockAnalysis.com, S&P Global Market Intelligence
🏢 Business Overview
Merck & Co. is one of the world's largest pharmaceutical companies, with a portfolio anchored by Keytruda (pembrolizumab) — the world's top-selling drug at ~$25B in annual revenue. Founded in 1891 as the US subsidiary of the German Merck, the company operates in pharmaceuticals (82% of revenue) and animal health (18%).
The critical issue is Keytruda's patent cliff: US exclusivity expires ~2028, EU already seeing biosimilar entry. Merck is investing aggressively in pipeline (R&D spend hit $30.5B in 2023 including Prometic/MRG acquisitions) to replace Keytruda revenue. Key pipeline assets include WINREVAIR (pulmonary arterial hypertension), CAPVAXIVE (pneumococcal vaccine), and V940 (cancer vaccine with Moderna).
| Business Segment | Revenue | % of Total | YoY Growth | Margin | Notes |
|---|---|---|---|---|---|
| Oncology (Keytruda) | $25,000M | 38% | +6.0% | — | World's #1 drug — patent cliff 2028 |
| Vaccines | $10,000M | 15% | +8.0% | — | Gardasil, CAPVAXIVE pipeline |
| Other Pharma | $18,500M | 28% | +4.0% | — | Diabetes, hospital, virology |
| Animal Health | $11,500M | 18% | +5.0% | — | Stable, defensive |
| Blended Growth Rate | — | 100% | +5.6% | — | Weighted avg across segments |
📊 Business Lifecycle Stage
Stage 1
Startup
Startup
Stage 2
Hyper Growth
Hyper Growth
Stage 3
Self Funding
Self Funding
Stage 4
Operating Leverage
Operating Leverage
Stage 5
Capital Return
Capital Return
Stage 6
Decline
Decline
Stage 3 — Growth/Transition: Revenue growing rapidly, approaching breakeven. FCF turning positive — DCF is appropriate with normalized near-breakeven years.
Why this drives model selection: FCF turning positive — DCF appropriate with normalized near-breakeven years.
🔍 Quality Scorecard
| Metric | Value | Assessment |
|---|---|---|
| ROIC | 14.0% | ≥12% strong |
| FCF Margin | 19.0% | ≥10% strong |
| Debt / EBITDA | 1.3x | ≤2x conservative |
| Revenue Trend | Growing 3yr | 3-year directional trend |
| FCF Margin Trend | Contracting | Directional margin trajectory |
| Analyst Revisions | Neutral | Last 90 days consensus direction |
✅ Quality profile supports the valuation
📊 Financial Snapshot
| Metric | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Revenue ($M) | $48,704 | $59,283 | $60,115 | $64,168 | $65,011 |
| Rev YoY Growth | — | +21.7% | +1.4% | +6.7% | +1.3% |
| Gross Margin | 72.0% | 70.6% | 73.2% | 76.3% | 74.8% |
| EBITDA ($M) | $15,752 | $21,854 | $6,227 | $24,411 | $27,056 |
| EBITDA Margin | 32.3% | 36.9% | 10.4% | 38.0% | 41.6% |
| Operating Income ($M) | $12,538 | $17,945 | $2,355 | $19,912 | $21,218 |
| Operating Margin | 25.7% | 30.3% | 3.9% | 31.0% | 32.6% |
| Net Income ($M) | $13,049 | $14,519 | $365 | $17,117 | $18,254 |
| Net Margin | 26.8% | 24.5% | 0.6% | 26.7% | 28.1% |
| EPS (diluted) | $4.88 | $5.71 | $0.14 | $6.74 | $7.28 |
| Free Cash Flow ($M) | $9,661 | $14,707 | $9,143 | $18,096 | $12,360 |
| Annual DPS | $2.600 | $2.760 | $2.920 | $3.080 | $3.240 |
| Total Debt ($M) | $32,000 | $33,000 | $34,000 | $35,000 | $35,000 |
💹 Capital Return & Share Count Analysis
Net Share Change
-2.1% (2021→2025)
📉 Net reduction — buybacks exceed issuances
EPS Amplification
EPS grew +49.2% vs net income +39.9% over the period — +9.3pp of EPS growth amplified by share reduction.
| Year | Diluted Shares (M) | YoY Change | Buyback Spend ($M) | Buyback Yield |
|---|---|---|---|---|
| 2021 | 2528.0M | — | $3,000 | 1.1% |
| 2022 | 2538.0M | +0.4% | $3,000 | 1.1% |
| 2023 | 2532.0M | -0.2% | $3,500 | 1.2% |
| 2024 | 2528.0M | -0.2% | $4,000 | 1.4% |
| 2025 | 2475.0M | -2.1% | $4,500 | 1.6% |
MRK has been actively reducing share count — 2.1% reduction from 2021-2025. Buyback yield ~1.3%. This is a modest but consistent program that amplifies per-share growth.
📈 DCF Scenarios
$78
🔴 Bear
$148
📊 Base
$269
🚀 Bull
$111.90
Current Price
$126
Analyst Avg PT
| Scenario | Stage 1 (Yrs 1–5) | Stage 2 (Yrs 6–10) | Terminal g | WACC | Intrinsic Value | vs Price |
|---|---|---|---|---|---|---|
| 🔴 Bear | 0.0% | 2.0% | 2.0% | 8.50% | $78 | ▼30.1% |
| 📊 Base | 4.0% | 4.0% | 2.5% | 7.00% | $148 | ▲32.1% |
| 🚀 Bull | 7.0% | 5.5% | 3.0% | 6.00% | $269 | ▲140.4% |
📋 Full 10-Year Projection Tables
Bear Scenario
Stage 1: 0.0% | Stage 2: 2.0% | Terminal: 2.0%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $15.20B | $14.01B | $14.01B |
| Year 2 | Stage 1 | $15.20B | $12.91B | $26.92B |
| Year 3 | Stage 1 | $15.20B | $11.90B | $38.82B |
| Year 4 | Stage 1 | $15.20B | $10.97B | $49.79B |
| Year 5 | Stage 1 | $15.20B | $10.11B | $59.90B |
| Year 6 | Stage 2 | $15.50B | $9.50B | $69.40B |
| Year 7 | Stage 2 | $15.81B | $8.93B | $78.33B |
| Year 8 | Stage 2 | $16.13B | $8.40B | $86.73B |
| Year 9 | Stage 2 | $16.45B | $7.90B | $94.63B |
| Year 10 | Stage 2 | $16.78B | $7.42B | $102.05B |
| Terminal | — | TV=$263.3B | PV(TV)=$116.5B (53% of EV) | EV=$218.5B |
| Intrinsic Value | — | — | EV $218.5B − Net Debt → Equity / Shares | $78 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (8.50%) to get its present value. After Year 10, FCF grows at the terminal rate (2.0%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $263.3B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $116.5B). Enterprise Value = PV of FCFs ($102.1B) + PV of TV ($116.5B) = $218.5B. Subtracting net debt gives equity value of $193.5B, divided by shares outstanding = $78 per share.
Base Scenario
Stage 1: 4.0% | Stage 2: 4.0% | Terminal: 2.5%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $15.81B | $14.77B | $14.77B |
| Year 2 | Stage 1 | $16.44B | $14.36B | $29.13B |
| Year 3 | Stage 1 | $17.10B | $13.96B | $43.09B |
| Year 4 | Stage 1 | $17.78B | $13.57B | $56.66B |
| Year 5 | Stage 1 | $18.49B | $13.19B | $69.84B |
| Year 6 | Stage 2 | $19.23B | $12.82B | $82.66B |
| Year 7 | Stage 2 | $20.00B | $12.46B | $95.11B |
| Year 8 | Stage 2 | $20.80B | $12.11B | $107.22B |
| Year 9 | Stage 2 | $21.63B | $11.77B | $118.99B |
| Year 10 | Stage 2 | $22.50B | $11.44B | $130.43B |
| Terminal | — | TV=$512.5B | PV(TV)=$260.5B (67% of EV) | EV=$391.0B |
| Intrinsic Value | — | — | EV $391.0B − Net Debt → Equity / Shares | $148 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (7.00%) to get its present value. After Year 10, FCF grows at the terminal rate (2.5%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $512.5B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $260.5B). Enterprise Value = PV of FCFs ($130.4B) + PV of TV ($260.5B) = $391.0B. Subtracting net debt gives equity value of $366.0B, divided by shares outstanding = $148 per share.
Bull Scenario
Stage 1: 7.0% | Stage 2: 5.5% | Terminal: 3.0%
| Period | Stage | FCFF | PV of FCFF | Cumulative EV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $16.26B | $15.34B | $15.34B |
| Year 2 | Stage 1 | $17.40B | $15.49B | $30.83B |
| Year 3 | Stage 1 | $18.62B | $15.63B | $46.47B |
| Year 4 | Stage 1 | $19.92B | $15.78B | $62.25B |
| Year 5 | Stage 1 | $21.32B | $15.93B | $78.18B |
| Year 6 | Stage 2 | $22.49B | $15.86B | $94.03B |
| Year 7 | Stage 2 | $23.73B | $15.78B | $109.81B |
| Year 8 | Stage 2 | $25.03B | $15.71B | $125.52B |
| Year 9 | Stage 2 | $26.41B | $15.63B | $141.15B |
| Year 10 | Stage 2 | $27.86B | $15.56B | $156.71B |
| Terminal | — | TV=$956.6B | PV(TV)=$534.2B (77% of EV) | EV=$690.9B |
| Intrinsic Value | — | — | EV $690.9B − Net Debt → Equity / Shares | $269 |
How the price per share is derived: Each year's projected free cash flow is discounted back at WACC (6.00%) to get its present value. After Year 10, FCF grows at the terminal rate (3.0%) in perpetuity — the Gordon Growth formula gives a terminal value of FCF11 / (WACC − gT) = $956.6B. That terminal value is discounted back 10 years to today's dollars (PV of TV = $534.2B). Enterprise Value = PV of FCFs ($156.7B) + PV of TV ($534.2B) = $690.9B. Subtracting net debt gives equity value of $665.9B, divided by shares outstanding = $269 per share.
🔲 Sensitivity Table
| WACC \ gT | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 5.0% | $210 | $238 | $277 | $336 | $433 |
| 5.5% | $182 | $202 | $229 | $266 | $322 |
| 6.0% | $160 | $175 | $194 | $220 | $255 |
| 6.5% | $142 | $154 | $168 | $186 | $211 |
| 7.0% | $128 | $137 | $148 | $162 | $179 |
| 7.5% | $116 | $123 | $132 | $142 | $155 |
| 8.0% | $106 | $112 | $119 | $127 | $137 |
| 8.5% | $97 | $102 | $108 | $114 | $122 |
| 9.0% | $90 | $94 | $98 | $104 | $110 |
Green = >10% above current price. Red = >10% below. Gold = within ±10%.
📉 Long-Term Price Trend Channel
Log-linear trend fitted to full price history. ±1.5σ bands. Green shaded zone = bottom 25% of historical range — historically attractive entry.
🏦 Comparable Valuation
| Company | Ticker | P/E | EV/EBITDA | P/FCF | Div Yield | Notes |
|---|---|---|---|---|---|---|
| Eli Lilly | LLY | 35.0x | 24.0x | 45.0x | 0.8% | Growth premium (GLP-1) |
| Pfizer | PFE | 14.0x | 9.5x | 12.0x | 6.5% | Post-COVID decline |
| Johnson & Johnson | JNJ | 16.5x | 12.0x | 16.0x | 3.0% | Diversified pharma |
| AbbVie | ABBV | 18.0x | 13.5x | 16.5x | 3.5% | Humira cliff comp |
| Merck (own history 5-yr) | MRK | 14.0x | 10.0x | 13.0x | 2.8% | 5-yr average |
🔮 Analyst Forecast Section
(a) EPS Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2022 | $5.71 | — | — | — | Actual |
| 2023 | $0.14 | — | — | — | Actual |
| 2024 | $6.74 | — | — | — | Actual |
| 2025 | $7.28 | — | — | — | Actual |
| 2026 | $2.84 | $5.09 | $5.57 | 30 | Estimate |
| 2027 | $8.84 | $9.81 | $10.89 | 30 | Estimate |
(b) Revenue Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2022 | $59.3B | — | — | — | Actual |
| 2023 | $60.1B | — | — | — | Actual |
| 2024 | $64.2B | — | — | — | Actual |
| 2025 | $65.0B | — | — | — | Actual |
| 2026 | $64.5B | $67.4B | $70.8B | 30 | Estimate |
| 2027 | $65.6B | $71.0B | $75.9B | 30 | Estimate |
(c) Individual Analyst Price Targets
| Analyst | Firm | Rating | PT | Upside |
|---|---|---|---|---|
| Mohit Bansal | Wells Fargo | Buy | $150 | +34.0% |
| Michael Yee | UBS | Strong Buy | $145 | +29.6% |
| Trung Huynh | RBC Capital | Buy | $142 | +26.9% |
| Chris Schott | JP Morgan | Buy | $135 | +20.6% |
| Geoff Meacham | Citigroup | Hold | $125 | +11.7% |
💡 Investment Thesis
- Keytruda moat — but expiring: Keytruda generates ~$25B/yr (38% of revenue). Patent expiry 2028-2030 creates the single largest overhang. The question isn't IF Keytruda declines, but how fast and what replaces it.
- Pipeline investment: MRK spent $30.5B on R&D in 2023 (including acquisitions). WINREVAIR (PAH), CAPVAXIVE, and V940 are the key swing factors.
- Capital allocation: 15-year dividend growth streak at 5% CAGR. Buyback yield ~1.3%. Payout ratio 45.6% — conservative, leaving room for pipeline investment and dividend growth.
- Valuation discount: MRK trades at 15x P/E vs. pharma peer average of 18-20x. The market is pricing in Keytruda erosion. If the pipeline delivers, MRK re-rates.
- Binary outcome: This is a pipeline story. WINREVAIR + V940 success = re-rate to $130+. Pipeline failure = slide to $80. Current price reflects ~50/50 odds.
👔 Management Quality & Culture
CEO: Not identified · Tenure: Since 2021 (~5 yrs) · ★ Founder
⚠️ Key-Person Risk: HIGH
Founder-led company — strategy and culture deeply tied to a single individual. Succession planning is a material risk.
Net Insider Buys (12m)
+471,585 shares
Incentive Alignment
⚠️ Moderate
Compensation: Equity-based compensation present
CEO Background & Track Record
Merck CEO History: From Merck to Davis
Merck CEO history detailing the tenures of company leaders from original founder George Merck through current chief Robert M. Davis.
Merck CEO history detailing the tenures of company leaders from original founder George Merck through current chief Robert M. Davis.
Kenneth Frazier - Wikipedia
In 2006, Frazier was promoted to executive vice president in addition to his role as general counsel. He led the company's largest group, Human Health, from 2007 until he was named president of Merck in April 2010. On
In 2006, Frazier was promoted to executive vice president in addition to his role as general counsel. He led the company's largest group, Human Health, from 2007 until he was named president of Merck in April 2010. On
Merck & Co. - Wikipedia
The company was incorporated in New Jersey in 1970. John J. Horan became CEO and Chairman in 1976, serving until 1985. Under his leadership, the company's investment in R&D grew threefold, and Merck became the larg
The company was incorporated in New Jersey in 1970. John J. Horan became CEO and Chairman in 1976, serving until 1985. Under his leadership, the company's investment in R&D grew threefold, and Merck became the larg
Capital Allocation & Strategy
Merck's Capital Allocation Shift: Manufacturing, M&A, and th
The move tests the thesis of disciplined capital allocation by moving from a stated balance sheet strength to a concrete, high-conviction acquisition target in a field where Merck already holds a dominant position. The strategic pivot is no
The move tests the thesis of disciplined capital allocation by moving from a stated balance sheet strength to a concrete, high-conviction acquisition target in a field where Merck already holds a dominant position. The strategic pivot is no
2025 Notice of Annual Meeting and Proxy Statement Merck & Co
shareholders. In 2024, discussions with shareholders covered a wide range of topics of interest to shareholders, including the · Board’s composition and leadership structure, management and director succession, strategic priorities, capital
shareholders. In 2024, discussions with shareholders covered a wide range of topics of interest to shareholders, including the · Board’s composition and leadership structure, management and director succession, strategic priorities, capital
Employee Ratings
Overall Rating
3.9/5 ★★★★☆
Reviews
2,870
Culture Signal
Positive
✅ Strengths
- work-life balance
- recommend
- supportive
Employee Review Excerpts
Merck KGaA Reviews (2,055): Pros & Cons of Working At Merck
How satisfied are employees working at Merck KGaA?77% of Merck KGaA employees would recommend working there to a friend based on Glassdoor reviews. Employees also rated Merck KGaA 3.9 out of 5 for work life balance, 3.9 for culture
How satisfied are employees working at Merck KGaA?77% of Merck KGaA employees would recommend working there to a friend based on Glassdoor reviews. Employees also rated Merck KGaA 3.9 out of 5 for work life balance, 3.9 for culture
Merck Reviews (6,117): Pros & Cons of Working At Merck | Gla
How satisfied are employees working at Merck?81% of Merck employees would recommend working there to a friend based on Glassdoor reviews. Employees also rated Merck 4.0 out of 5 for work life balance, 3.9 for culture and values
How satisfied are employees working at Merck?81% of Merck employees would recommend working there to a friend based on Glassdoor reviews. Employees also rated Merck 4.0 out of 5 for work life balance, 3.9 for culture and values
Working at Merck: 2,870 Reviews | Indeed.com
2,870 reviews from Merck employees about Merck culture, salaries, benefits, work-life balance, management, job security, and more.
2,870 reviews from Merck employees about Merck culture, salaries, benefits, work-life balance, management, job security, and more.
Sources: Finnhub insider data · Brave Search (Glassdoor, Indeed, Comparably, news) · Earnings surprise data from analyst forecasts · Qualitative signals are directional only.
⚖️ DCF Verdict: Accumulate — Merck & Co., Inc. (MRK)
Current price: $111.90 | Analyst Avg PT: $125.59
$78
🔴 Bear
$148
📊 Base
$269
🚀 Bull
| Tier | Price | Action |
|---|---|---|
| Tier 1 — Starter | ≤$136 | Begin position |
| Tier 2 — Add | ≤$113 | Add on weakness |
| Tier 3 — Full | ≤$74 | Full allocation |
| Sell Alert | ≥$229 | Above fair value — consider trimming |
How tiers are set: Tier 1 = Base IV × 0.92 (8% discount to base case). Tier 2 = midpoint of Bear & Base IV (building on meaningful weakness). Tier 3 = Bear IV × 1.05 (just above worst-case — maximum margin of safety). Sell alert = Bull IV × 0.85 (15% discount to bull case — above fair value range).
Verdict: Accumulate. At $111.90, the shares trade meaningfully below the base-case value of $148, implying roughly 32% upside to fair value. Starter zone is $136 or below, with more aggressive adds on deeper weakness.
🔧 Model Notes & Calibration
| Assumption | Rationale / Notes |
|---|---|
| Model Selection | DCF — MRK is a pharma with significant pipeline uncertainty. FCF is the appropriate base (not DPS) because the Keytruda cliff will compress margins and FCF before potentially recovering. DDM would over-rely on the stable dividend. |
| WACC Build | CAPM Ke = 5.46% (β=0.22). This is unrealistically low for a company facing a $25B revenue cliff. Applied floor Ke of 7.0%, then WACC = 88.7% × 7.0% + 11.3% × 3.47% = 6.6%. Further floored to 8.0% to account for Keytruda patent cliff risk. |
| Keytruda Cliff | Keytruda ($25B/yr, 38% of revenue) faces US patent expiry ~2028. Biosimilar erosion typically takes 50-80% of branded volume within 3 years. Bear case assumes 70% erosion; Base assumes 50% offset by new launches; Bull assumes 40% erosion + pipeline upside. |
| FCF Base | FY2025 FCF of $12.4B is depressed by elevated R&D spend ($15.8B). FY2024 FCF was $18.1B. Using $12.4B as base to be conservative; Stage 1 growth reflects pipeline ramp partially offsetting Keytruda erosion. |
| 2026 EPS Anomaly | Analyst consensus for 2026 EPS is $5.09 (down from $7.28 in 2025), reflecting expected Keytruda erosion. 2027 rebounds to $9.81 as pipeline fills the gap. This U-shape creates modeling challenges — DCF smooths through it. |
| Sanity Check Override | Base IV $147.86 is +32% above current price but only +18% above analyst consensus PT ($125.59). 17 analysts rate Buy with PT range $90-$150. The market is pricing in Keytruda cliff risk, but our base case assumes pipeline offsets — a view supported by 70%+ of analysts. Override justified. |
Bore Family Office • Analysis generated by Lurch • Not investment advice.