Merck & Co., Inc. (MRK): what the price assumes
In the published model solve dated 2026-Q2, anchored at $148.35, Merck & Co., Inc. (MRK) is priced for +11.4% growth. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-07-03.
Generated: 2026-08-30 · Source: https://boothcheck.com/report/MRK
Headline
| Field | Value |
|---|---|
| Ticker | MRK |
| Company | Merck & Co., Inc. |
| Current price | $148.35/sh |
| Composition | Keytruda 49% / Keytruda Qlex 0% / Alliance revenue - Lynparza 2% / Alliance revenue - Lenvima 2% / Welireg 1% / Alliance revenue - Reblozyl 1% / Gardasil/Gardasil 9 8% / ProQuad/M-M-R II/Varivax 4% / Vaxneuvance 1% / Capvaxive 1% / RotaTeq 1% / Pneumovax 23 0% / Bridion 3% / Prevymis 2% / Zerbaxa 0% / Dificid 0% / Winrevair 2% / Alliance revenue - Adempas/Verquvo 1% / Adempas 0% / Ohtuvayre 0% / Lagevrio 1% / Isentress/Isentress HD 1% / Delstrigo 0% / Pifeltro 0% / Belsomra 0% / Simponi 0% / Remicade 0% / Januvia 2% / Janumet 1% / Other pharmaceutical 4% / Animal Health - Livestock 6% / Animal Health - Companion Animal 4% / Other 1% |
What The Price Assumes (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin (value-band context) | 13.6% |
| Operating margin (mid-cycle) | 20.6% |
| Margin compression (value-band) | -7.0pp |
| Trailing margin (depressed year) | 8.9% |
| Implied growth | 11.4% |
| Multiple paid | 30x mid-cycle operating income |
The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.
Solve inputs: computed at a 7.1% cost of capital with 4% terminal growth over a 5-year stage.
How unusual the bet is: n/a
| Reference | Value |
|---|---|
| cohort percentile (of 115 peers) | 71 |
Valuation X-Ray
Asset, earnings-power and peer-multiple models all land far below the price; ONLY the growth-DCF reaches it. The bet is durable compounding the static frames structurally cannot price (a moat/durability premium).
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 11.26x | 4 | expensive |
| Earnings | 3.13x | 3 | expensive |
| Relative | — | 0 | — |
| Growth | 1.07x | 3 | expensive |
Families that justify the price: Growth Families that call it expensive: Asset, Earnings
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.2%); the inversion above states its own rate.
Per-Model Detail (n=10)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $138.07 | 1.07x | yes | FCF base $16.1B, growth 5% (input: historical growth), terminal g 4.0%, WACC 8.2%, 6yr projection |
| DCF Exit Multiple | Growth | $141.63 | 1.05x | yes | Exit EV/EBITDA: 708.9x / 710.9x / 712.9x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | — | — | no | P/E 51.4x (blended: static sector reference 24x + trailing (TTM) 115x), scenarios: 43.0x / 51.4x / 59.8x (bear / base = reference held flat / bull), EV/EBITDA 35.2x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $13.90 | 10.67x | yes | BV/sh $17.00, ROE (TTM) 7.6%, ke 9.3% |
| Two-Stage Excess Return | Asset | $12.53 | 11.84x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $111.96 | 1.33x | yes | Rev $66.6B, growth 5% (input: historical growth; tapered), Terminal P/S: 4.6x / 5.5x / 6.4x (bear / base = today's held flat / bull, cap 8x) |
| Growth-Adjusted P/E | Relative | — | — | no | — |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | — | — | no | — |
| Residual Income | Asset | $12.32 | 12.04x | yes | BV $17.00 + 5yr PV of (ROE (TTM) 7.6% − Kₑ 9.3%) × BV; BV grows 4.9%/yr |
| Graham Number | Asset | $21.86 | 6.79x | yes | √(22.5 × EPS $1.25 × BVPS $17.00) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | — | — | no | EBITDA $0.58B × sector EV/EBITDA 16.0x |
| FCF Yield | Earnings | $51.31 | 2.89x | yes | FCF $16063.0M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $47.40 | 3.13x | yes | SBC-adj FCF $15.17B (FCF $16.06B − SBC $0.89B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $1.05 | 141.29x | yes | EPS $1.25 × (8.5 + 2×-5.0%) × (4.4 / 5.3%) (excluded from median) |
| ROIC-Justified P/B | Asset | — | — | no | — |
| P/Sales Sector | Relative | — | — | no | Revenue $66.57B × sector P/S 4.0x |
| PEG Fair Value | Relative | — | — | no | — |
| Earnings Yield | Earnings | $13.51 | 10.98x | yes | EPS $1.25 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Economic-Unit Decomposition (Sum Of The Parts)
One or more material disclosed units has unresolved economics. Unknown/general is not evidence of homogeneity: segment SOTP is primary but incomplete, consolidated cash flow may remain only a secondary cross-check when every unit shares an enterprise basis, and one sector multiple or target margin is withheld.
| Unit | Role | Valuation basis | Revenue | Reported profit | Value evidence | Status |
|---|---|---|---|---|---|---|
| Pharmaceutical | operating | enterprise | $58.1b | — | withheld | unresolved no unit value |
| Animal Health | operating | enterprise | $6.4b | — | withheld | unresolved no unit value |
No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.
Solvency
| Field | Value |
|---|---|
| Net debt | $49.1b |
| Net debt / NOPAT (after-tax) | 4.54x |
| Net debt / operating income (pre-tax) | 3.58x |
| Interest coverage | 7.9x |
| Share count CAGR (buyback) | -0.7% |
| Burning cash | no |
Leverage and coverage are computed on normalized mid-cycle operating income (mid-cycle margin 20.6%); the trailing year was depressed.
Bullet Takeaways
At $113.90 (as of June 27, 2026) Merck trades close to where the standard methods land, with the DCF and peer multiples clustering near $89 to $106. It is a roughly fairly valued large-cap pharma, not a deep discount.
The balance sheet funds the bridge over the patent cliff. Merck generated about $14.1 billion of trailing free cash flow, runs interest coverage near 9.3x, and carries net debt of about $45.7 billion at a manageable 3.2x operating income. That cash is the resource paying for the pipeline that has to replace Keytruda.
The defining risk is regulatory and concentration. Keytruda topped $8 billion in the quarter and goes off patent in 2028, and the entire sector faces government price pressure, so the bet is whether Winrevair, Animal Health, and 20-plus new launches can offset the loss of the biggest oncology drug in the world.
Bull Case
The balance sheet is the foundation of the bull case, because the patent cliff is a financing-and-pipeline problem and Merck has the resources to solve it. The company produced about $14.1 billion of trailing free cash flow, carries interest coverage near 9.3x, and holds net debt of roughly $45.7 billion against that cash flow, a manageable 3.2x operating income. Trailing return on equity near 19.5% on a modest book shows how much cash the franchise throws off. This is a company with the runway to invest through a transition, fund a growing dividend, and pursue business development, all from operations rather than from a stretched balance sheet.
The cash is already buying the replacement growth. Q1 2026 revenue rose 5% to $16.3 billion, and the standouts were the new products: Winrevair, for a rare and deadly lung condition, grew 88% to $525 million with peak-sales estimates of $5 to $7 billion, and Merck cited over 20 new product launches plus a breakout quarter for Winrevair. Even Keytruda itself is still growing, up 12% to $8.03 billion and beating estimates, while the more convenient injectable Keytruda Qlex begins to build a base to defend the franchise past 2028. The filing shows the deal-making engine working alongside the pipeline, with alliance revenue including "a $150 million upfront payment received and $175 million of regulatory approval milestones" on a single program (FY2025 10-K, accession 0000310158-26-000063).
The diversification is real and the valuation does not demand heroics. Animal Health, vaccines including Gardasil, and the new launches give Merck multiple growth vectors beyond oncology, and the segment carrying the priced-in premium is Animal Health, not Keytruda. On the standard methods the price is near fair: DCF Perpetual Growth at $94, DCF Exit Multiple at $106, P/Sales at $106, and the reverse-DCF reasonable band runs to a base near $131. For a buyer who believes the pipeline and Animal Health offset the Keytruda decline, the bull case is a cash-rich, diversified pharma trading around fair value with the financial strength to manage its own cliff.
Bear Case
The dominant risk is regulatory and external, and it sits on top of a revenue base concentrated in one drug. The entire pharmaceutical sector faces escalating government price pressure, and Merck's own filing lists "pricing pressures in the public and private sectors, both in the U.S. and abroad, including rules and practices of managed care groups, judicial decisions and governmental laws and regulations related to Medicare, Medicaid" as a core risk to results (FY2025 10-K, accession 0000310158-26-000063). Drug-price negotiation under federal law targets exactly the high-revenue products Merck depends on, and unlike a competitive setback, a legislated price cut is not something execution can fix. This is the variable with the most leverage on the thesis, and the current price does not obviously discount it.
Layered on the regulation is the Keytruda cliff. Keytruda is the single largest revenue source, topping $8 billion in the quarter, and it loses U.S. patent protection in 2028. The filing is candid about how exclusivity erodes, warning of "reductions and product displacements, even for products protected by patents" as competing compounds proliferate (accession 0000310158-26-000063). The injectable Qlex version is meant to defend the franchise, but at $128 million in the quarter it is a fraction of the base it must replace. The Two-Stage dividend-discount method in the model assumes a 34% stage-one decline precisely because the market is bracing for the post-2028 drop.
The valuation offers a thin cushion against that combination. At $113.90 the price sits modestly above several growth and relative methods (DCF Perpetual at $94, Relative Valuation at $89), and well above the earnings-power and asset methods (FCF yield at $44, Earnings Power frames in the high $30s to high $50s). International sales already declined 11% in 2025 (accession 0000310158-26-000063), and the segment carrying the priced-in premium, Animal Health, sits at the very top of its peer distribution, a multiple only about 26% of comparable fast-growers have sustained.
Valuation
Lead with the segment carrying the priced-in premium: Animal Health. The decomposition shows the price embeds operating growth held near its self-funding ceiling for about eight years in that segment, computed at a 7% cost of capital, a multiple that sits at the very top of its peer distribution and that only about 26% of comparable fast-growers have sustained. That is the demanding part of the bet. The much larger pharmaceutical base, dominated by Keytruda, is priced more conservatively, which is the model's way of saying the market is leaning on the smaller, faster-growing pieces to carry the premium while it discounts the cliff in the core.
The whole-company X-ray lands near fair. The growth and relative methods cluster just below to just above the price: DCF Perpetual Growth at $94, DCF Exit Multiple at $106, P/Sales at $106, Relative Valuation at $89, and Discounted Future Market Cap at $81. The asset and earnings-power methods are lower, with Residual Income at $55, Two-Stage Excess Return at $56, and FCF yield at $44, because they capitalize current cash without crediting the pipeline. The reverse-DCF reasonable band runs from roughly $111 to $248 with a base near $131, so the current price sits at the low end of that range.
The synthesis is a fairly valued large-cap with a binary overhang. On the methods that credit continued growth, Merck is worth roughly what it trades for, and the base of the reverse-DCF band sits modestly above the price. On the methods that price only what it earns today, it looks expensive. The gap between them is the pipeline-and-Animal-Health premium, and the load-bearing question is whether Winrevair, the new launches, and Animal Health grow fast enough to offset Keytruda after 2028. The price is consistent with that working; it is not a discount that pays you to wait for proof.
Catalysts
The Q1 2026 print, reported April 30, 2026, is the key recent event: revenue of $16.3 billion up 5%, with Keytruda up 12% to $8.03 billion (beating estimates) and Winrevair up 88% to $525 million, against a one-time Cidara-related charge that hit reported results (CNBC; TIKR). Management pointed to over 20 new product launches and a breakout Winrevair quarter as evidence the diversification engine is scaling.
The forward set is dominated by the patent cliff and pipeline ramp. The swing factors into the coming years are the pace of Winrevair adoption toward its $5 to $7 billion peak estimate, the uptake of injectable Keytruda Qlex ahead of the 2028 loss of exclusivity, Animal Health growth, contributions from new launches such as Capvaxive, and the outcome of government drug-price negotiations. Analyst sentiment is steady, with a consensus target near $118 (high $139) and a December 2025 upgrade to $130 from BMO Capital (Simply Wall St; Yahoo Finance). The defining question each quarter is whether the broader base can keep guiding higher even as Keytruda approaches its cliff.
Sources: Merck Q1 2026 results (CNBC, April 2026; TIKR); Simply Wall St launch and guidance coverage; Yahoo Finance and Alphastreet diversification analysis (2026).
Peer Cohorts (Per Segment, With Filing Citations)
Pharmaceutical (reported)
- JNJ (Johnson & Johnson)
- FY2025 10-K: …market, resulting in the potential for substantial market share and revenue losses for the applicable products, and which may result in a non-cash impairment charge in any associated intangible asset. In addition, from time to time, the Company's subsidiaries may settle these types of actions and such settlements can…
- FY2025 10-K: 2025, representing an increase of 10.1% as compared to the prior year. Growth of SPRAVATO (esketamine) was driven by continued increased physician and patient demand. Growth was partially offset by the sales decline of INVEGA SUSTENNA / XEPLION / INVEGA TRINZA / TREVICTA primarily due to the impact of Medicare Part D…
- ABBV (AbbVie Inc.)
- FY2025 10-K: …directly or indirectly, through reimbursement, payment, pricing, coverage limitations, or compulsory licensing. Political and budgetary pressures in the United States and in other countries may also heighten the scope and severity of pricing pressures on AbbVie's products for the foreseeable future. United States.…
- FY2025 10-K: …the introduction of a generic or other follow-on product after the expiration of applicable patent and other regulatory exclusivity periods. Biologics may be entitled to exclusivity under the Biologics Price Competition and Innovation Act, which was passed on March 23, 2010 as Title VII to the Patient Protection and…
- LLY (ELI LILLY & Co)
- FY2025 10-K: …and vendors. These agreements may be breached, and we cannot be certain that we have adequate remedies. If our trade secrets or confidential information become known or are independently discovered by competitors, or if we enter into disputes over ownership of inventions, our business and results of operations could…
- FY2025 10-K: …our long-term competitive success depends on discovering and developing or acquiring and further developing innovative, cost-effective products that provide improved outcomes for patients and deliver value to payers, and continuously improving the productivity of our operations in a highly competitive and global…
- BMY (Bristol-Myers Squibb Company)
- FY2025 10-K: …end of regulatory exclusivity or the COM patent expiration for the respective products and PTR if granted. In situations where there is only regulatory exclusivity without patent protection, a competitor could seek regulatory approval by submitting its own clinical study data to obtain marketing approval prior to the…
- FY2025 10-K: …consolidation and integration of pharmacy chains, wholesalers and pharmacy benefit managers will increase competitive and pricing pressures on pharmaceutical manufacturers, including us. Third-party royalties represent a significant percentage of our pretax income and operating cash flow. We have entered into several…
- PFE (Pfizer Inc.)
- FY2025 10-K: …of generic drugs, including from generic versions of competitors' branded products that lose their market exclusivity, is a major challenge for our branded products. Certain of our products have experienced significant generic competition over the last few years. We anticipate a significant reduction of revenue from…
- FY2025 10-K: ProductsMember pfe:BiopharmaSegmentMember 2025-01-01 2025-12-31 0000078003 pfe:B7H4VFelmetatugVedotinMember us-gaap:InProcessResearchAndDevelopmentMember pfe:BiopharmaSegmentMember 2024-01-01 2024-12-31 0000078003 pfe:MedrolMember pfe:BrandMember pfe:BiopharmaSegmentMember 2024-01-01 2024-12-31 0000078003…
Animal Health (reported)
- PFE (Pfizer Inc.)
- FY2025 10-K: …estimated costs of these activities. We are also party to a number of other proceedings brought under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, and other state, local or foreign laws in which the primary relief sought is the cost of past and/or future remediation.…
- FY2025 10-K: , outpatient care, and preventative services for people with Medicare Medicare Part D a prescription drug coverage program for people with Medicare Meridian Meridian Medical Technologies, Inc. Metsera Metsera, Inc. Moody's Moody's Ratings (formerly Moody's Investors Service) mRNA messenger ribonucleic acid MSA…
- BMY (Bristol-Myers Squibb Company)
- FY2025 10-K: …that a project will be completed and used for its intended function. The amended guidance is effective for annual periods beginning after December 15, 2027 and interim periods within those annual periods. Early adoption is permitted. The Company is assessing the potential impact of the amended standard.…
- FY2025 10-K: …aGVHD acute graft-versus-host disease MS Multiple Sclerosis Amgen Amgen Inc. MSI-High microsatellite instability-high AML acute myeloid leukemia MyoKardia MyoKardia, Inc. Amylin Amylin Pharmaceuticals, Inc. MZL marginal zone lymphoma ANDA abbreviated New Drug Application NAV net asset value ASC Accounting Standards…
- JNJ (Johnson & Johnson)
- FY2025 10-K: …jnj:WholesalerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-12-30 2025-12-28 0000200406 jnj:Wholesaler2Member jnj:WholesalerConcentrationRiskMember us-gaap:SalesRevenueNetMember 2024-12-30 2025-12-28 0000200406 jnj:Wholesaler3Member jnj:WholesalerConcentrationRiskMember us-gaap:SalesRevenueNetMember…
- FY2025 10-K: …jnj:InnovativeMedicineMember 2024-01-01 2024-12-29 0000200406 jnj:OtherInfectiousDiseasesMember country:US jnj:InfectiousDiseasesMember jnj:InnovativeMedicineMember 2023-01-02 2023-12-31 0000200406 jnj:OtherInfectiousDiseasesMember us-gaap:NonUsMember jnj:InfectiousDiseasesMember jnj:InnovativeMedicineMember…
- ABBV (AbbVie Inc.)
- FY2025 10-K: …Internal Revenue's cross-motion for summary judgment. The United States Tax Court ordered and decided that there is no deficiency in income tax due from AbbVie for the tax year 2014. In September 2025, the Commissioner of Internal Revenue appealed this decision. In February 2026, the Commissioner of Internal Revenue…
- FY2025 10-K: …Biologics have added major therapeutic options for the treatment of many diseases, including some for which therapies were unavailable or inadequate. The cost of developing and producing biologic therapies is typically dramatically higher than for small molecule medications, and many biologic medications are used for…
- NVS (Novartis AG)
- FY2025 20-F: …to conform with 2025 presentation of brands by therapeutic area and established brands. 2 For an explanation of non-IFRS measures and reconciliation tables, see "-Non-IFRS measures as defined by Novartis." 45 The following table provides the top 20 product net sales from continuing operations 1 in 2025, as well as…
- FY2025 20-F: …growth drivers. • Embed operational excellence to deliver returns : In an increasingly competitive environment, we are simplifying processes and reducing costs to become more efficient and effective in our decision-making and to free up resources for investment in new medicines. Our goal is to continue making…
- GSK (GSK plc)
- FY2025 20-F: …Product Disease Total revenue AER CER Shingrix Herpes zoster (shingles) £3.6bn 6% 8% Bexsero Meningitis group B £1.2bn 14% 16% Menveo Meningitis group A, C, W and Y £402m 4% 6% Penmenvy Meningitis group A, B, C, W and Y £8m -% -% Arexvy RSV £593m 1% 2% Fluarix, FluLaval Seasonal influenza £303m -26% -24% Engerix,…
- FY2025 20-F: …data ethics, privacy, information and cyber security, and data integrity. Research involving animals can raise ethical concerns. In many cases, however, it is the only way to investigate the effects of a potential new medicine or vaccine in a living body other than in humans. Animal research provides critical…
- AZN (ASTRAZENECA PLC)
- FY2025 20-F: …management opemalirsen podocyte health nephropathy Respiratory & Immunology atuliflapon FLAP inhibitor asthma AZD1163 anti-PAD2/4 bispecific antibody rheumatoid arthritis AZD4604 inhaled JAK1 inhibitor asthma AZD6793 IRAK4 inhibitor COPD AZD7798 …
- FY2025 20-F: 00 % Cambridge Antibody Technology Group Limited 100 % Evinova Limited 100 % KuDOS Horsham Limited 100 % KuDOS Pharmaceuticals Limited 100 % Syntimmune Limited 100 % Zenco (No. 8) Limited 100 % Zeneca Finance (Netherlands) Company 100 % MedImmune Limited 100 % 1 Francis Crick Avenue, Cambridge Biomedical Campus,…
- LLY (ELI LILLY & Co)
- FY2025 10-K: …as may derive from inadequate agency staffing levels, expertise, or resources. 15 Following approval, our products must meet, and must continue to comply with, regulation by various government and regulatory agencies in connection with labeling, import, export, sale, storage, recordkeeping, advertising, promotion,…
- FY2025 10-K: …in combination with endocrine therapy for treatment of HR+, HER2-, node positive, early breast cancer at high risk of recurrence. 6 Therapeutic area Products Certain Indications Immunology products Ebglyss For the treatment of adult and adolescent patients 12 years or older with moderate to severe atopic dermatitis…
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.