Merck Earnings: Gardasil Weighs on 2025 Growth, but Firm Still Undervalued

Key Morningstar Metrics for Merck

• Fair Value Estimate: $111.00
• Morningstar Rating: ★★★★
• Morningstar Economic Moat Rating: Wide
• Morningstar Uncertainty Rating: Medium

What We Thought of Merck’s Earnings

Merck’s MRK fourth-quarter revenue grew 7% to $15.6 billion (including Keytruda growth of 21% to $7.8 billion), in line with overall 7% growth for the year. Shares fell more than 10% as Merck paused Gardasil shipments to China, and 2025 sales guidance of $64.1 billion-$65.6 billion implies flat to 2% growth.

Why it matters: HPV vaccine Gardasil has been hit by economic weakness in China and the cash-pay nature of Gardasil China sales. This has led management to withdraw guidance for $11 billion in Gardasil annual global sales by 2030.

• Gardasil was 13% of Merck’s sales in 2024, and roughly half of Gardasil sales tie to China.
• This increases reliance on Merck’s oncology drug Keytruda (46% of sales), which could face biosimilar competition and Medicare negotiation in 2028.

The bottom line: We’re lowering our fair value estimate for Merck to $111 per share from $120 after factoring in a steep 34% Gardasil decline in 2025. We now assume Merck will see 1% sales growth in 2025 before returning to mid- to high-single-digit growth in 2026 and 2027.

• We have lowered our 2030 Gardasil sales forecast from $10 billion to $7 billion given limited visibility on a China recovery and continuing uncertainty surrounding US vaccine policy.
• We expect Keytruda sales to fall from a peak of $41 billion in 2028 to below $10 billion annually by 2032, which we think factors in sufficient pressure from patent expiration and competition.

Big picture: We continue to see Merck shares as undervalued, with the market’s fears about Keytruda’s long-term sales trajectory overshadowing potential from newer products and a promising pipeline.

• We anticipate peak sales for pulmonary hypertension drug Winrevair around $4 billion, and we’re bullish on the mRNA-based Keytruda combination that could launch in melanoma in 2027.
• Merck still plans to continue bolstering its pipeline with business development, and we think the market would look favorably on deals in cardiovascular disease or oncology.