Key Takeaways

Pricing and regulatory pressures, patent expirations, and lagging innovation are set to erode Merck KGaA's margins and limit revenue growth across core healthcare segments.
Geopolitical instability, trade disruptions, and environmental compliance needs will drive up costs and threaten sales momentum, especially in fast-growing Asia-Pacific markets.
Diversified growth across segments, strategic acquisitions, and resilient operational responses are driving sustained revenue expansion and stable margins despite macroeconomic challenges.

Catalysts

About Merck KGaA

Operates as a science and technology company in Germany.What are the underlying business or industry changes driving this perspective?

Intensifying global scrutiny around drug pricing and increased cost transparency, combined with looming reimbursement cuts in both the United States and Europe, threaten to seriously erode Merck KGaA's pricing power and place a hard ceiling on revenue growth in its healthcare segment over the next several years.
Geopolitical instability and protectionist policies, including volatile U.S.-China tariff negotiations, are expected to fragment global supply chains and impose recurring trade disruptions, driving up operating costs and increasing the risk of sales shortfalls, particularly in fast-growing Asia-Pacific markets.
Heightened regulatory and ESG pressures, with tightening emissions and environmental compliance standards, will necessitate substantial capital investments to retrofit facilities and adjust production processes, compressing operating margins as environmental costs escalate.
Constrained public research and academic funding, most notably in the U.S. following cuts to NIH budgets, is likely to trigger a long-term slowdown in demand from the Science and Lab Solutions business, limiting growth in core Life Science revenue streams and dampening overall group topline expansion.
The risk of patent expirations and relentless biosimilar competition across Merck KGaA's core pharma portfolio is set to accelerate margin compression and threaten revenue stability, as the company has demonstrated only moderate late-stage pipeline success and could be outpaced by faster-moving innovation in areas like mRNA, gene therapy, and digital health.

Merck KGaA Earnings and Revenue Growth

Merck KGaA Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

This narrative explores a more pessimistic perspective on Merck KGaA compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
The bearish analysts are assuming Merck KGaA's revenue will grow by 1.1% annually over the next 3 years.
The bearish analysts assume that profit margins will increase from 13.2% today to 14.2% in 3 years time.
The bearish analysts expect earnings to reach €3.1 billion (and earnings per share of €7.18) by about June 2028, up from €2.8 billion today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 19.0x on those 2028 earnings, up from 17.9x today. This future PE is greater than the current PE for the GB Pharmaceuticals industry at 17.9x.
Analysts expect the number of shares outstanding to grow by 0.31% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 4.73%, as per the Simply Wall St company report.

Merck KGaA Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Robust and broad-based recovery in Process Solutions, with strong double-digit growth and high book-to-bill ratios, signals enduring and accelerating customer demand for bioprocessing consumables, which supports continued top-line growth and sustained operating margins in the Life Science segment.
Semiconductor Materials continues to deliver strong organic growth, driven by secular demand from AI, advanced node technologies, and long-term industry momentum in electronics, positioning Merck KGaA for ongoing revenue and earnings expansion in its Electronics division.
Strategic acquisitions, such as SpringWorks Therapeutics, are expected to bolster the pharmaceutical pipeline and create new growth avenues, with full accretion expected by 2027, reinforcing mid
and long-term earnings momentum and supporting net income growth.
Management's effective response to macro headwinds-including robust tariff mitigation, supply chain resilience, and targeted localization-has demonstrated adaptability, limiting potential margin erosion and safeguarding EBITDA growth even amid volatility.
The company's diversified business model, spanning Healthcare, Life Science, and Electronics, provides resilience against localized downturns, supporting stable group revenue growth and contributing to reduced earnings volatility over the long term.

Valuation

How have all the factors above been brought together to estimate a fair value?

The assumed bearish price target for Merck KGaA is €117.62, which represents two standard deviations below the consensus price target of €160.19. This valuation is based on what can be assumed as the expectations of Merck KGaA's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €195.0, and the most bearish reporting a price target of just €107.0.
In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €22.0 billion, earnings will come to €3.1 billion, and it would be trading on a PE ratio of 19.0x, assuming you use a discount rate of 4.7%.
Given the current share price of €116.3, the bearish analyst price target of €117.62 is 1.1% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.