While the broader S&P Healthcare index has risen by 6% this year, and investors have generally favored healthcare stocks as a defensive strategy amid concerns over the economic impact of Trump’s tariffs, Merck stock (NYSE:MRK) has fallen by 10%. This underperformance can be attributed, in part, to investors factoring in the impending loss of market exclusivity for its key drug, Keytruda. With only three years remaining, and Keytruda accounting for a substantial 46% (nearly $30 billion) of Merck’s total sales, the challenge of bridging this revenue gap is significant. Additionally, slowing sales of Gardasil in China have contributed to investor caution.
However, Merck’s stock is now trading at attractive valuations. Historically, pharmaceutical companies approaching a patent cliff often pursue aggressive acquisitions or collaborations. AbbVie’s successful collaboration with Boehringer Ingelheim for Skyrizi, along with other strategic acquisitions, demonstrates how such moves can effectively mitigate the impact of biosimilar competition, as seen with Humira.
We beleive that MRK stock looks an attractive pick to buy at its current price of around $90. We believe there is minimal cause for concern with MRK stock, which makes it attractive given that its current valuation looks moderate.
We arrive at our conclusion by comparing the current valuation of MRK stock with its operating performance over the recent years as well as its current and historical financial condition. Our analysis of Merck along key parameters of Growth, Profitability, Financial Stability, and Downturn Resilience shows that the company has a very strong operating performance and financial condition, as detailed below. However, for investors who seek lower volatility than individual stocks, the Trefis High-Quality portfolio presents an alternative – having outperformed the S&P 500 and generated returns exceeding 91% since its inception.
How Does Merck’s Valuation Look vs. The S&P 500?
Going by what you pay per dollar of sales or profit, MRK stock is currently valued in line with the broader market.
- Merck has a price-to-sales (P/S) ratio of 3.6 vs. a figure of 3.2 for the S&P 500
- Additionally, the company’s price-to-operating income (P/EBIT) ratio is 11.4 compared to 24.3 for S&P 500
- And, it has a price-to-earnings (P/E) ratio of 10.8 vs. the benchmark’s 24.3
How Have Merck’s Revenues Grown Over Recent Years?
Merck’s Revenues have seen notable growth over recent years.
- Merck has seen its top line grow at an average rate of 10.0% over the last 3 years (vs. increase of 6.3% for S&P 500)
- Its revenues have grown 6.7% from $60 Bil to $64 Bil in the last 12 months (vs. growth of 5.2% for S&P 500)
- Also, its quarterly revenues grew 6.8% to $16 Bil in the most recent quarter from $15 Bil a year ago (vs. 5.0% improvement for S&P 500)
How Profitable Is Merck?
Merck’s profit margins are much higher than most companies in the Trefis coverage universe.
Does Merck Look Financially Stable?
Merck’s balance sheet looks strong.
- Merck’s Debt figure was $37 Bil at the end of the most recent quarter, while its market capitalization is $225 Bil (as of 3/31/2025). This implies a strong Debt-to-Equity Ratio of 16.1% (vs. 19.0% for S&P 500). [Note: A lower Debt-to-Equity Ratio is desirable]
- Cash (including cash equivalents) makes up $14 Bil of the $117 Bil in Total Assets for Merck. This yields a moderate Cash-to-Assets Ratio of 11.7% (vs. 14.8% for S&P 500)
How Resilient Is MRK Stock During A Downturn?
MRK stock has been more resilient than the benchmark S&P 500 index during some of the recent downturns. Worried about the impact of a market crash on MRK stock? Our dashboard How Low Can Merck Stock Go In A Market Crash? has a detailed analysis of how the stock performed during and after previous market crashes.
Inflation Shock (2022)
- MRK stock fell 10.8% from a high of $82.37 on 10 January 2022 to $73.51 on 24 February 2022, vs. a peak-to-trough decline of 25.4% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 30 March 2022
- Since then, the stock has increased to a high of $132.96 on 24 June 2024 and currently trades at around $89
Covid Pandemic (2020)
- MRK stock fell 20.0% from a high of $82.97 on 4 March 2020 to $66.40 on 23 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 16 April 2020
Global Financial Crisis (2008)
- MRK stock fell 65.5% from a high of $60.77 on 10 December 2007 to $20.99 on 9 March 2009, vs. a peak-to-trough decline of 56.8% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 5 September 2014
Putting All The Pieces Together: What It Means For MRK Stock
In summary, Merck’s performance across the parameters detailed above are as follows:
- Growth: Very Strong
- Profitability: Very Strong
- Financial Stability: Strong
- Downturn Resilience: Strong
- Overall: Very Strong
Despite Merck’s solid performance across key metrics, its stock maintains a moderate valuation, which we believe makes it an attractive stock to buy.
While MRK stock looks promising, investing in a single stock can be risky. On the other hand, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics.
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