Merck (MRK) Valuation in Focus After FDA Breakthrough, Pipeline Advances, and New Cost-Cutting Plans

If you have been eyeing Merck (MRK) lately, the buzz this month might feel especially relevant. After months of anticipation, the company delivered a series of pipeline updates, with some results positive and others less so. Most recently, Merck secured an FDA Breakthrough Therapy Designation for ifinatamab deruxtecan in lung cancer, initiated new studies in breast cancer, and advanced several cardiovascular programs. At the same time, Merck announced a far-reaching cost reduction plan with the goal of boosting efficiency by 2027. While some investors may focus on VERQUVO’s disappointing trial results or a dip in vaccine sales, this recent activity highlights both the potential and challenges facing the pharmaceutical company at the moment.

On the stock front, Merck’s momentum has shifted noticeably. Shares have climbed 6% in the past month and are up 9% over the past three months, suggesting that market sentiment has improved as clinical updates and cost measures emerged. Even so, the stock remains down around 27% over the past year. This mixed trajectory follows a period of modest long-term gains, with the five-year return standing at 21%. Some investors may be questioning whether this rebound signals renewed confidence or if lingering caution reflects concerns about revenue growth or risks following the Keytruda era.

The stage is set for a closer look at the numbers. Is Merck trading at a discount to its fundamentals, or does the current price already reflect the company’s future growth outlook?

Most Popular Narrative: 16.2% Undervalued

According to the community narrative, Merck is currently considered undervalued based on its future earnings growth, new product pipeline, and expected margin expansion, with a fair value estimate driven by analyst consensus.

Merck plans to bring over 20 new growth drivers to market in the coming years. Most of these are viewed as having blockbuster potential, which could significantly boost future revenue. The company is making strategic investments in manufacturing, including $9 billion in U.S. projects through 2028. These actions may improve net margins by optimizing supply chains and reducing potential tariff impacts.

Curious what’s behind this 16% undervaluation call? The secret mix includes bold growth projections, blockbuster drugs, and profit margins that could surprise even seasoned investors. Wondering which financial levers push this valuation so high? Peel back the layers to see the high-stakes forecasts underneath the surface.

Result: Fair Value of $100.41 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, declining GARDASIL sales and the looming loss of KEYTRUDA exclusivity could quickly dampen Merck’s growth outlook, which may challenge even bullish forecasts.

Find out about the key risks to this Merck narrative.

Another View: Discounted Cash Flow Perspective

Taking a step back from analyst targets, our DCF model offers a different lens. This approach factors in all future expected cash flows to estimate value. It also shows Merck as undervalued, but could its assumptions hold up?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Merck for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Merck Narrative

If you see things differently, or want to take a hands-on approach, you can piece together your own view in just a few minutes, and even do it your way.

A great starting point for your Merck research is our analysis highlighting 5 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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