Merck Posts Solid Q4 Results, but Heavy Investments in 2023 Weigh on 2023 Guidance

Merck reported fourth-quarter results that slightly exceeded our expectations but issued 2023 guidance that is a little below our projections. Taken together, we don't expect any major changes to Merck's fair value estimate based on the update. The lower-than-expected growth guidance is partly driven by higher-than-expected 2023 expenses in research and development and marketing costs (along with a higher tax rate). We believe Merck is investing in the business to help prepare for the 2028 U.S. patent loss on the firm's leading drug Keytruda. We expect Merck's pipeline developments to help mitigate the significant eventual loss of Keytruda and reinforce the company's wide moat.