Our Calculation Of Intrinsic Value: Merck & Co.

Profile

Merck & Co. (MRK) is one of the world’s leading global pharmaceutical companies, focused on innovative prescription medicines, vaccines, biologic therapies, and animal health products.

The company generates earnings through a diversified healthcare portfolio that includes oncology, vaccines, hospital acute care, cardiovascular treatments, immunology, diabetes therapies, and animal health solutions. Its flagship oncology drug Keytruda remains one of the most important growth drivers in global pharmaceuticals.

Merck’s business model is driven by continued demand for innovative therapies, expansion of blockbuster products, successful pipeline development, regulatory approvals, patent protection, and disciplined capital allocation supported by strong recurring cash flow generation.

Merck’s competitive advantages include a globally diversified pharmaceutical platform, strong intellectual property portfolio, leading oncology franchise, extensive R&D capabilities, broad international distribution network, and durable free cash flow generation.

The company continues to benefit from growing oncology demand, vaccine expansion, pipeline development, and strategic acquisitions, while maintaining a strong balance sheet and shareholder return program.

DCF Analysis

Inputs

• Discount Rate: 8%

• Terminal Growth Rate: 2%

• WACC: 8%

Forecasted Free Cash Flows (in billions USD)

2026: $15.0 → PV: $13.9
2027: $15.8 → PV: $13.5
2028: $16.5 → PV: $13.1
2029: $17.2 → PV: $12.6
2030: $18.0 → PV: $12.2

Total Present Value of FCFs = ~$65.3B

Terminal Value Calculation

Using perpetuity growth model with 2030 FCF = $18.0B:

TV = (18.0 × 1.02) ÷ (0.08 − 0.02)

TV ≈ $306.0B

Present Value of Terminal Value ≈ $208.0B

Enterprise Value

Enterprise Value = $65.3B + $208.0B = $273.3B

Net Debt

Cash & Equivalents: ~$14.6B
Total Debt: ~$49.3B

Net Debt ≈ $34.7B

Equity Value & Per-Share Value

Equity Value = $273.3B − $34.7B = $238.6B

Shares Outstanding: ~2.47B

Intrinsic Value per Share ≈ $96–98

Conclusion

DCF Value: ~$97
Current Price: ~$113
Margin of Safety: ~–14%

Merck remains one of the highest-quality pharmaceutical franchises globally, supported by dominant oncology assets, strong vaccine demand, and resilient cash flow generation.

Growth continues to be driven by Keytruda expansion, pipeline execution, and international market penetration, while the company maintains disciplined capital allocation and balance sheet strength.

However, at current levels, the stock appears modestly overvalued relative to normalized long-term free cash flow assumptions. Future returns will likely depend on continued pipeline success, sustained oncology leadership, and the company’s ability to offset upcoming patent expirations through innovation and acquisitions.