Merck & Co., Inc.MRKNYSE

Overview Intelligence Charts News Fundamentals

DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $240.35 per share(market-calibrated)

+100.6%

Upside to Fair Value

Current

$119.83

Pure Model

$273.65

Fair Value

$240.35

Bull Case

$320.62

Bear Case

$240.53

Market Reality Check

Model Terminal Growth

3.00%

Market-Implied Growth

0.50%

Calibrated Growth

2.13%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $273.65.

What's Driving This Ratingfor MRK

↓

CapEx normalizing toward maintenance

Historical CapEx is 4.94% of revenue (heavy investment phase). Model fades this to 3.50% by Year 10, freeing up ~$1.2B in annual FCF. This is the biggest driver of long-term cash flow improvement.

↑

Margin expansion modeled

Current EBIT margin is 36.32% — below the sector mature average of 41.19%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $29.0B (36.32% margin).

⚠

Analyst growth decelerates sharply

Revenue growth drops from 2.69% in Year 1 to -0.69% by Year 5 (per analyst consensus). That's below the 3.00% terminal rate, so growth re-accelerates in Years 6-10 — a generous assumption. This growth deceleration is a key reason the model may undervalue the stock if growth re-accelerates.

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 250bps below the model's 3.00%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 79.57% indicates efficient cash generation. FCF reaches $26.1B by Year 10 (32.69% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.30

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)5.83%

Cost of Debt

Pre-tax Cost of Debt1.66%

Tax Rate13.31%

After-tax Cost of Debt1.44%

Equity Weight (E/V)85.60%

Debt Weight (D/V)14.40%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (85.60% × 5.83%) + (14.40% × 1.44%)

= 5.50%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$66.8B	$74.8B	$74.0B	$74.6B	$79.8B
EBIT	$24.2B	$27.2B	$26.9B	$27.1B	$29.0B
Tax	$3.2B	$3.6B	$3.6B	$3.6B	$3.9B
NOPAT	$21.0B	$23.5B	$23.3B	$23.5B	$25.1B
+ Depreciation	$3.2B	$3.6B	$3.5B	$3.6B	$3.8B
- Capex	$3.3B	$3.5B	$3.2B	$3.0B	$2.8B
- Δ NWC	$36M	$95M	-$11M	$12M	$48M
Free Cash Flow	$20.9B	$23.6B	$23.6B	$24.1B	$26.1B
Discount Factor	0.948	0.852	0.765	0.687	0.585
Present Value	$19.8B	$20.1B	$18.1B	$16.5B	$15.3B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$26.1B

Terminal Growth Rate3.00%

WACC5.50%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$1.1T

PV of Terminal Value$628.9B

Exit Multiple Method

Year 10 EBITDA$32.8B

Exit Multiple (EV/EBITDA)24.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$786.5B

PV of Terminal Value$460.5B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$177.4B

PV of Terminal Value$628.9B

Enterprise Value$806.4B

(-) Net Debt$36.0B

Equity Value$770.4B

Shares Outstanding2.5B

Price per Share$307.25

Exit Multiple Method

PV of Projected FCFs$177.4B

PV of Terminal Value$460.5B

Enterprise Value$637.9B

(-) Net Debt$36.0B

Equity Value$601.9B

Shares Outstanding2.5B

Price per Share$240.05

Pure Model Fair Value

$273.65

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	2.00%	2.50%	3.00%	3.50%	4.00%
3.50%	$347.08	$332.64	$318.88	$305.77	$293.26
4.50%	$297.65	$332.64	$318.88	$305.77	$293.26
5.50%	$236.95	$252.24	$273.65	$305.77	$293.26
6.50%	$199.38	$207.57	$218.11	$232.16	$251.82
7.50%	$172.78	$177.71	$183.74	$191.28	$200.96

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$240.53

100.7% vs current

• -25% vs analyst consensus
• Terminal growth: 2.5%
• Beta: 0.37

Base Case

$273.65

128.4% vs current

• Analyst consensus
• Terminal growth: 3.0%
• Beta: 0.30

Bull Case

$320.62

167.6% vs current

• +25% vs analyst consensus
• Terminal growth: 3.5%
• Beta: 0.30

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Healthcare Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth2.69%

Year 3 Revenue Growth6.52%

Year 5 Revenue Growth-0.69%

Year 7 Revenue Growth0.78%

Year 10 Revenue Growth3.00%

Terminal Growth Rate3.00%

Margin & Efficiency

Current EBIT Margin36.32%

Terminal EBIT Margin41.19%

Tax Rate13.31%

Historical Capex / Rev4.94%

Terminal Capex / Rev3.50%

NWC / Revenue2.08%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 24x EV/EBITDA (Healthcare sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

Explore More

S&P 500 Screener

Filter and sort all 500 stocks

Market Movers

Today's biggest gainers and losers

Market Heatmap

Visual sector performance