Merck & Co (MRK) 25Q3 Update

25Q3 sales rose 3.7% to $17.3 billion, exceeding my estimate by 3.9%.  The revenue beat was due mostly to higher than anticipated sales of GARDASIL.  Although GARDASIL sales were down 24% YOY, they were up 55% sequentially, breaking a four quarter consecutive string of declines.  GARDASIL sales in China fell 53.7% YOY, but increased 6.1% sequentially, also the first advance in five quarters. Gross margin increased 120 bp to 77.7%, due to sales mix and lower restructuring costs, while operating expense decreased by 20%, due primarily to a 75% drop in business development expenses.  Thus, GAAP diluted EPS jumped 86.4% to $2.32, above my estimate of $1.89.  Non-GAAP diluted EPS rose 64.6% to $2.58, better than my estimate of $2.24.  In October, Merck acquired Verona Pharma place and its recently FDA-approved maintenance treatment, Ohtuvayre, for COPD.

Management again narrowed its guidance range for 2025 revenues from $64.3-$65.3 billion to $64.5-$65.0 billion and raised the low end of its non-GAAP EPS guidance range from $8.87-$8.97 to $8.93-$8.98.  With 25Q3 results and the updated guidance, my forecast for 2025 sales has increased from $64.8 billion to $65.0 billion; my GAAP EPS estimate has increased from $7.59 to $7.71; and I have raised my non-GAAP EPS estimate from $8.90 to $8.98.  For 2026, I am now forecasting revenue of $67.7 billion (down from $69.3 billion, previously), GAAP EPS of $8.06 (down from $8.09) and non-GAAP EPS of $9.25 (down from $9.30).  I see Merck’s cash increasing from $16 billion in 2025 and to $25.0 billion in 2026, modestly lower than my previous forecast.  If realized, at least some of the cash will be deployed in business development transactions, including acquisitions, or possibly increased share repurchases.

Since my previous report (8/6), Merck’s stock has surged 38.5%, better than the S&P 500’s 8.7% advance, and even better than the 25.7% jump in the NYSE ARCA Pharmaceutical Index.  Most of the recovery in Merck’s and peers’ stock prices has occurred since mid-November before the Federal government reached settlements with major pharmaceutical companies on pricing.  Under its settlement, Merck will provide key products, such as Januvia, through a direct-to-patient program.  Januvia will be priced at a 70% discount to its list price.  It plans to price its oral PCSK9 inhibitor candidate affordably to consumers, if approved by the FDA.  Merck has also reached an understanding with the U.S. Dept. of Commerce to delay Section 232 tariffs for three years to give it time to reshore manufacturing to the U.S.

With this advance, Merck’s stock is priced at 11.9 times projected 2025 non-GAAP EPS of $8.98 and 11.5 times projected 2026 non-GAAP EPS of $9.25.  That is still below the peer group averages (excluding LLY, REGN and VRTX) of 14.0 and 13.1, respectively.  Assuming that it continues to show progress in addressing the Keytruda patent expiration in 2028, its discount vs. peers should narrow over time.  Accordingly, I am raising my price target from $90 to $120, which equates to a multiple of 13.0 times projected 2026 Non-GAAP EPS of $9.25.  That represents a potential total return of 15.9%, including its 3.2% dividend yield.  I am therefore lowering my performance rating from “1” (Buy) to “2” (Outperform).

This is a summary of my recent update report on Merck & Co., Inc. (MRK). To obtain a copy of the report, please reach out to me using the contact information provided below.

January 5, 2026 (Report published on January 3, 2026.)

Stephen P. Percoco
Lark Research
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© 2015-2026 by Stephen P. Percoco, Lark Research.   All rights reserved.

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