24Q4 sales rose 6.8% to $15.6 billion. Excluding currency, sales rose 9%. Once again, a high teens percentage gain in KEYTRUDA sales more than offset declining sales in most of the rest of the portfolio. GAAP diluted EPS was $1.48, compared with 23Q4’s loss of $0.48 and my estimate of $1.74. Non-GAAP diluted EPS was $1.72 vs. last year’s $0.03 and my $1.84 estimate. The shortfall against my estimate was due mostly to acquisition related charges, including $700 million related to licensing agreements with LaNova (for its anti-PD-1/VEGF bispecific antibody), and Hansoh Pharma (for its investigational preclinical oral small molecule GLP-1 receptor agonist), and higher operating expenses related to strategic investments supporting Merck’s pipeline and other key growth drivers.
Market dynamics for GARDISIL in China remain challenging. After recent discussions with its commercialization partner, Zhifei, Merck has temporarily paused shipments to China beginning this month to at least mid-year to allow Zhifei to work down its high inventory levels. Merck still sees a significant long-term opportunity for GARDASIL in China, but it has also withdrawn its long-term (to 2030) global revenue target for the vaccine of $11 billion.
Management’s guidance for 2025 anticipates revenue of $64.1-$65.6 billion, gross margin of 82.5%, non-GAAP operating expenses of $25.4-$26.4 billion and non-GAAP EPS of $8.88-$9.03. My projections for 2025, which are in line with that guidance, show revenue of $64.7 billion, GAAP EPS of $7.76 and non-GAAP EPS of $8.91. For 2026, I am forecasting revenue of $69.7 billion, up 7.7%, GAAP EPS of $8.65 and non-GAAP EPS of $9.67. Over the forecast period, my projections see Merck’s cash increasing from $13.2 billion in 2024 to $23.0 billion in 2025 and then to $39.0 billion, even with assumed annual share repurchases of $2.0 billion, higher than the annual average of $1.3 billion over the past two years. If Merck does generate that much cash, it will not sit on the balance sheet, but instead be deployed in business development transactions, including acquisitions, or possibly increased share repurchases.
Since my previous report, Merck’s stock has posted a negative total return, -11.2%, worse than the 0.2% total return on the S&P 500. On price, Merck’s stock is down 11.9% over that period, compared with the NYSE ARCA Pharmaceutical Index’s 2.4% gain. The stock’s strong performance in 2022, which had flipped its valuation discount vs. peers to a premium, has given way to two years of underperformance and a restoration of the valuation discount. Investors remain concerned about the impact of patent expirations, including KEYTRUDA’s loss of exclusivity in 2028. Yet, the company has promising new candidates, such as WINREVAIR for pulmonary arterial hypertension, and a pipeline of 30 candidates in Phase 3 trials, many of which have blockbuster sales potential.
Based upon this last stock price drop, I am lowering my price target for the second consecutive quarter, this time from $122 to $109. The revised price target equates to a forward multiple of 12.6 times projected 2026 GAAP EPS of $8.65, and 11.3 times projected 2026 non-GAAP EPS of $9.67. At the current price of $89.41, the total return potential is nearly 26%, including its 3.6% dividend yield. Accordingly, I am maintaining my performance rating of “1” (Buy).
This is a summary of my recent update report on Merck & Co. (MRK). To obtain a copy of the report, please reach out to me using the contact information provided below.
March 25, 2025 (Report published on February 26, 2025.)
Stephen P. Percoco
Lark Research
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© 2015-2025 by Stephen P. Percoco, Lark Research. All rights reserved.
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