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Merck KGaA: Aiming for 2024 Rebound and Maintaining Longer-Term Goals

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In what could be a positive sign for our thesis on the life science industry, narrow-moat Merck KGaA MRK 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.

While the 2023 reset period in the life science industry has been deeper than we initially anticipated, Merck management expects demand trends to start normalizing in 2024 and remain strong in the long term. Specifically, the company expects inventory destocking to end in early 2024 and life science sales to start growing again in the first half of the year. Also, the company reiterated its medium-term growth target for the life science segment at 7% to 10% organic sales growth, which is roughly in line with our view for Merck’s life science tools versus the weakness being felt by Merck and the broader industry in 2023.

Also, management expects the company’s electronics business to recover in 2024 after 2023 weakness in the semiconductor end market. Management is still aiming for 3% to 6% organic sales growth in the electronics segment in the long run.

Beyond 2023, we expect Merck KGaA to grow sales about 6% and adjusted EPS about 9% compounded annually through 2028. After an especially weak 2023, those expectations would be more in line with normalized patterns for Merck.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Julie Utterback

Senior Equity Analyst
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Julie Utterback is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. Within the healthcare industry, she covers medical technology and service companies. She is also the chairperson of the equity research team’s capital allocation methodology.

Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry. At that time, she covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Prior to joining Morningstar, Utterback was an equity analyst at State Farm Insurance for several years. She holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign. She also holds the Chartered Financial Analyst® designation.

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