Company Reports

Merck KGaA has made a series of acquisitions and divestitures in the past decade or so to position the group for solid long-term growth in three key segments: life sciences, electronics, and healthcare. So although Merck is in the middle of a reset period following the pandemic boom years and although the biopharmaceutical pipeline has experienced a setback with evobrutinib (multiple sclerosis), we continue to have a positive view of the company's long-term prospects.

Narrow-moat Merck KGaA's fourth-quarter results reflected continued challenges in its life science and semiconductor end markets. The firm generated results within its target ranges for 2023, albeit a little lower than we were expecting. However, management reiterated its goal of returning to organic growth in 2024, which it characterized as slight to moderate growth on the top and bottom lines, suggesting that the 2023 declines in its life science and electronics segments will start reversing this year. At first glance, we do not anticipate changing our fair value estimate. The shares appear about fairly valued.

Narrow-moat Merck KGaA announced that its multiple sclerosis candidate evobrutinib had failed in two Phase III trials. We have fully removed probability-weighted sales of that drug candidate from our model. However, when considering cash flows generated by the conglomerate since our last valuation change in May, our fair value estimates (EUR 171/$38) for Merck have not changed materially. Shares appeared about fairly valued prior to this announcement, but we would not be surprised to see shares fall into undervalued territory on this disappointing news.

Merck KGaA has made a series of acquisitions and divestitures in the past decade or so to position the group for solid long-term growth in three key segments: life sciences, electronics, and healthcare. So although Merck is in the middle of a reset period following the pandemic boom years and although the biopharmaceutical pipeline has experienced a setback with evobrutinib (multiple sclerosis), we continue to have a positive view of the company's long-term prospects.

With help primarily from its biopharmaceutical products in the healthcare segment, narrow-moat Merck KGaA delivered slightly better-than-expected third-quarter results and kept its 2023 outlook intact. Management also reiterated its goal of returning to organic growth in 2024, suggesting that the 2023 declines in its life science and electronics segments will start reversing next year. We are keeping our fair value estimates for the firm (EUR 171/$38) intact, and shares continue to look moderately undervalued.

In what could be a positive sign for our thesis on the life science industry, narrow-moat Merck KGaA highlighted at its investor day that it expects to return to growth in 2024 and maintained its longer-term goals as well, including its goal for about EUR 25 billion in sales in 2025. Like us, management appears to believe that the 2023 reset period is an anomaly that will start reversing in 2024, and at first glance, we do not expect to make changes to our fair value estimates (EUR 171/$38) since our views are largely reflected in management's goals. Merck shares continue to trade moderately below fair value, in our opinion.

Narrow-moat Merck KGaA delivered weak second-quarter results, and with these trends, management reduced its 2023 outlook. Mild tinkering with our near-term expectations does not materially affect our fair value estimates for the firm (EUR 171/$38), though, and shares continue to trade near fair value, in our opinion.

Life science toolmakers that enable drug production operate attractive businesses for two major reasons that investors often find compelling. First, regulation of the drug manufacturing process creates highly durable switching costs for end users and long potential revenue streams for life science toolmakers. Second, life science firms often benefit from broad exposure to biopharmaceutical growth without taking on much product-specific risk.

Narrow-moat Merck KGaA delivered solid first-quarter results, and its 2023 guidance looks in line with our expectations. To reflect cash flow generated in recent quarters, a slight increase in our long-term margin outlook for the firm, and currency movements since our last valuation change, we moderately raise our fair value estimate (EUR 171/$38 from EUR 158/$33). Shares still trade near fair value after these changes.

Merck KGaA has made a series of acquisitions and divestitures in the past decade or so to position the group for solid long-term growth in three key segments: life sciences, performance materials, and healthcare. However, after robust results during the pandemic due to COVID-19-related demand particularly in its life sciences business, we think the company's intermediate-term growth may soften toward more historic norms.

Shares in narrow-moat Merck KGaA declined in the midsingle digits on a percentage basis after the announcement that the Food and Drug Administration had paused new patient enrollment on its development-stage drug evobrutinib (for multiple sclerosis) on safety concerns. At first glance, we do not anticipate changing our fair value estimates on this announcement, given the relatively limited impact that this drug candidate will have on this diverse firm's long-term cash flow generation, especially when considering recently generated cash flows in our model. Shares appear to be falling toward roughly fair valuations at Merck KGaA, in our opinion.

Narrow-moat Merck KGaA delivered fourth-quarter results and 2023 guidance that were slightly lower than we anticipated. However, when considering cash flows generated in recent months, our euro-denominated fair value estimate has not changed; a mild adjustment to our U.S. dollar-related fair value estimate is only due to recent currency movements. Shares look likely to still trade slightly above intrinsic value.

Merck KGaA has made a series of acquisitions and divestitures in the past decade or so to position the group for solid long-term growth in three key segments: life sciences, performance materials, and healthcare. However, after robust results in 2020 and 2021 due to COVID-19-related benefits particularly in its life sciences business, we think the company's intermediate-term growth may soften toward more historic norms.

Narrow-moat Merck KGaA delivered third-quarter results that were about as expected, and the company continues to track toward our expectations for the full year. After recognizing cash flows generated since our last valuation update, we are raising our fair value estimate moderately. Shares recently traded slightly above our new fair value estimate.

Merck KGaA has made a series of acquisitions and divestitures in the past decade or so to position the group for solid long-term growth in three key segments: life sciences, performance materials, and healthcare. However, after robust results in 2020 and 2021 due to COVID-19-related benefits particularly in its life sciences business, we think the company's intermediate-term growth may soften toward more historic norms.

Narrow-moat Merck KGaA revealed solid second-quarter results and a slightly higher outlook than we had been incorporating into our model for 2022. Even after recognizing those decent trends in our model, though, we do not anticipate changing our fair value estimate at first glance. The shares continue to trade at moderately rich levels, in our opinion.

Narrow-moat Merck KGaA revealed solid first-quarter results and a slightly higher outlook than we had been incorporating in our model for 2022. With those solid trends and cash flows generated since our last valuation update, we have raised our EUR fair value estimate by 7%. However, because of recent strengthening of the U.S. dollar, we are actually trimming our U.S. ADR valuation by 3%. Overall, even after the recent pullback in Merck shares, we still see shares as trading slightly above fair value.

Merck KGaA has made a series of acquisitions and divestitures in the past decade or so to position the group for solid long-term growth in three key segments: life sciences, performance materials, and healthcare. However, after robust results in 2020 and 2021 due to COVID-19-related benefits particularly in its life sciences business, we think the company's intermediate-term growth may soften toward more historic norms.

Narrow-moat Merck KGaA revealed strong fourth-quarter operating results that continued to be helped by pandemic-related activities. Given our view that Merck's prospects may decelerate in the intermediate term when the pandemic turns into an endemic situation, we are keeping our fair value estimate intact and continue to view the shares as moderately rich.

After releasing preliminary results about a week ago, narrow-moat Merck KGaA revealed strong third-quarter operating results. We have raised our fair value estimate to EUR 137 based on this near-term outperformance. However, shares still look significantly overvalued to us when considering Merck's intermediate-term prospects may face pressure as the pandemic dissipates.