MRK Stock Study (9-22-25)

Posted by Mark on November 22, 2024 at 06:55 | Last modified: October 10, 2025 08:30

I recently did a stock study on Merck & Co., Inc. (MRK) with a closing price of $81.51. The previous study is here.

M* writes:

     > Merck makes pharmaceutical products to treat several conditions in a number
     > of therapeutic areas, including cardiometabolic disease, cancer, and
     > infections. Within cancer, the firm’s immuno-oncology platform, led by
     > Keytruda, is a major contributor to overall sales. The company also has a
     > substantial vaccine business aimed at preventing pediatric diseases, as
     > well as Gardasil for human papillomavirus. Additionally, Merck sells animal
     > health-related drugs. From a geographical perspective, 47% of the company’s
     > sales are generated from US human health (pharmaceuticals and vaccines).

Over the past 10 years, the mega-size ( > $50B annual revenue) company has grown sales and earnings at annualized rates of 6.0% and 5.2%, respectively. Lines are mostly up and straight except for YOY EPS declines in ’16, ’17, ’20, and ’23 (large). Ten- (Five-) year EPS R^2 is only 0.02 (0.03) [both jump to 0.79 with ’23 excluded], and Value Line (VL) gives an Earnings Predictability score of 40.

Over the past decade, PTPM trails peer and industry averages despite increasing from 13.7% (’15) to 31.1% (’24) with a last-5-year mean of 21.7%. ROE also trails peer and industry averages despite increasing from 9.5% (’15) to 38.3% (’24) with a last-5-year mean of 26.0%. Debt-to-Capital is less than peer and industry averages despite increasing from 37.2% (’15) to 44.5% (’24) with a last-5-year mean of 47.0%.

Quick Ratio is 0.8 and Interest Coverage is 16 per M* who assigns a “Wide” Economic Moat and “Standard” Capital Allocation. VL gives an A rating for Financial Strength.

With regard to sales growth:

• YF projects YOY 0.9% and 4.9% for ’25 and ’26, respectively (based on 24 analysts).
• Zacks projects YOY 1.2% and 5.2% for ’25 and ’26, respectively (7 analysts).
• VL projects 4.8% annualized growth from ’24-’29.
• CFRA projects 1.6% YOY and 3.7% per year for ’25 and ’24-’26, respectively.
• M* projects 3.4% for the next two years and mid- to high-single digits [percent] from ’26-’28 in its analyst note.

My 2.0% forecast is bottom of the range.

With regard to EPS growth:

• MarketWatch projects 13.1% and 12.6% per year for ’24-’26 and ’24-’27, respectively (based on 27 analysts).
• Nasdaq.com projects 8.4% and 7.7% per year for ’25-’27 and ’25-’28 ( 9 / 6 / 3 analysts for ’25 / ’27 / ’28 ).
• Seeking Alpha projects 4-year annualized growth of 9.5%.
• Argus projects 5-year annualized growth of 9.0%.
• FINVIZ projects 5-year annualized growth of 11.1% per year (5).
• LSEG gives a “LTG forecast” of 12.3%.*
• YF projects YOY 7.7% and 8.9% for ’25 and ’26, respectively (23).
• Zacks projects YOY 16.7% and 7.4% for ’25 and ’26, respectively (10), along with 5-year annualized growth of 10.9%.
• VL projects 8.9% annualized growth from ’24-’29.
• CFRA projects 17.1% YOY and 13.5% per year for ’25 and ’24-’26, respectively, and a 3-year CAGR of 4.0%.
• M* projects long-term annualized growth of 11.4%.

My 8.0% forecast is just below the range of seven long-term estimates (mean 10.4%). Initial value is 2025 Q2 EPS of $6.49/share rather than ’24 EPS of $6.74.

My Forecast High P/E is 18.0. Over the past decade, high P/E falls from 38.9 in ’15 to 20.0 in ’24 with a last-5-year mean of 22.5 (excluding 855 in ’24) and a last-5-year-mean average P/E of 19.2. I am below the range.

My Forecast Low P/E is 10.0. Over the past decade, low P/E falls from 27.9 in ’15 to 14.0 in ’24 with a last-5-year mean of 15.8 (excluding 688 in ’23). I am forecasting below the range.

My Low Stock Price Forecast (LSPF) is the default value of $64.90. This is 20.4% less than previous closing price and 11.5% less than the 52-week low.

Over the past decade, Payout Ratio (PR) declines from 116% in ’15 to 46.3% in ’24 with a last-5-year mean of 59.7% (excluding 2114% in ’23). I am forecasting below the entire range at 40.0%.

These inputs land MRK in the BUY zone with an U/D ratio of 5.4. The Total Annualized Return (TAR) is 18.3%.

PAR (using Forecast Average—not High—P/E) of 13.2% is solid for a mega-size company. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on the total annualized return (TAR) of 18.3% instead.

To assess MOS, I compare my inputs with those of Member Sentiment (MS). Based on 150 studies (my study and 23 outliers excluded) over the past 90 days, averages (lower of mean/median) for projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and PR are 4.6%, 9.8%, 18.4, 12.0, and 40.0%, respectively. I am lower across the board. VL’s projected average annual P/E of 13.0 is less than MS (15.2) and less than mine (14.0).

MS high / low EPS are $10.74 / $6.52 versus my $9.54 / $6.49 (per share). My high EPS is less due to a lower growth rate. VL’s $11.70 [high EPS] soars above both.

MS LSPF of $69.10 implies Forecast Low P/E of 10.6: less than the above-stated 12.0. MS LSPF is 11.7% less than the default $6.52/share * 12.0 = $78.24 resulting in more conservative zoning. MS LSPF is still 6.5% greater than mine.

With regard to valuation, PEG is 1.5 and 0.84 per my projected P/E and Zacks, respectively: slightly undervalued. Relative Value [(current P/E) / 5-year-mean average P/E] is cheap at 0.66.

MOS is robust because my inputs are near or below respective analyst/historical ranges and MS averages. This is further corroberated by an MS TAR 16.0% per year greater than my 18.3%.

Per U/D, MRK is a BUY under $91.60/share. Given a forecast high of $171.60, a 171.6 * ((1 – ((15.0 – 2.2) / 100)) ^ 5)
~ $86.50/share target price meets the BI TAR criterion.

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* — Google AI reports: “while there is no fixed period for the ‘long-term growth’ (LTG) forecast
       on a London Stock Exchange Group (LSEG) detailed stock report, it typically reflects an average
       estimate over a three- to five-year time frame. This forecast horizon can vary depending on the
       analyst or research firm providing the data.”