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The American company Merck & Co. (ISIN: US58933Y1055) is one of the world’s largest pharmaceutical companies and, more than almost any other, embodies the success story of modern immuno-oncology. With its cancer drug Keytruda, the U.S. company based in Rahway, New Jersey, has developed a medication that is now considered the top-selling drug in the pharmaceutical industry and treats dozens of types of cancer. The company’s “equity story” rests on three pillars: a dominant position in oncology, a broad vaccine portfolio centered on Gardasil, and a growing animal health division. At the same time, Merck & Co. benefits from long-term megatrends such as the aging global population, rising cancer rates, and growing health awareness in emerging markets. This core message is complemented by the company’s increasing diversification: While Keytruda was the dominant growth driver for years, other products—such as the cardiovascular drug Winrevair, the animal health division, and a number of new approvals—are now gaining importance for future profitability. Merck & Co. is thus seeking to address the megatrend of an aging and increasingly chronically ill global population with an ever-broader product portfolio—rather than relying exclusively on a single blockbuster drug. This strategic diversification is also a response to one of the biggest structural changes the company will face in the coming years. The challenge lies in developing alternatives to compensate for the loss of patent protection for Keytruda toward the end of the decade. Investors have long feared this scenario.
Source: Stock price
Over the past twelve months, the stock price has impressively reflected this mix of strength and structural uncertainty. After a difficult period in 2025, during which the stock suffered from concerns about Keytruda’s patent expiration and regulatory uncertainties in the U.S. and came under significant pressure at times, the price recovered noticeably over the course of 2026, even hitting a new record high of around $135 at the end of July 2026. Currently, the stock is trading slightly below that level at about $128, corresponding to a market capitalization of approximately $316 billion. Volatility remained moderate compared to the rest of the industry, which speaks to the defensive nature of the pharmaceutical sector and is also reflected in the stock’s low beta factor of well below one. The main drivers of short-term price movements in recent months have been quarterly earnings reports, approval decisions by the U.S. Food and Drug Administration (FDA), and news of acquisitions, such as the multi-billion-dollar acquisition of Terns Pharmaceuticals in the spring of 2026. Macroeconomic factors, such as the U.S. Federal Reserve’s interest rate policy and discussions about drug prices in the United States, also played a role, as pharmaceutical stocks are considered both interest-rate-sensitive and a defensive, non-cyclical asset class. With this Merck & Co. stock analysis, we aim to shed light on what all of this could mean for the stock. It provides a detailed assessment of the equity story, current financial results, and the opportunities and risks associated with Merck & Co. stock. In particular, the focus is on the dividend analysis, in which Merck & Co. stock ranks as a top performer.
Merck & Co., known outside the U.S. and Canada as MSD (Merck Sharp & Dohme), is a research-oriented pharmaceutical company. With a market capitalization of $274 billion, it is the fifth-largest player in the pharmaceutical industry.
Source: Screener
The company must be strictly distinguished from Darmstadt-based Merck KGaA, with which it has had no capital ties since the two companies split in 1917. The core operating business is divided into three segments. By far the largest segment is Pharmaceuticals, which includes prescription human medicines and vaccines and contributed approximately $14.8 billion in revenue in the second quarter of 2026. Within this segment, oncology dominates with the flagship product Keytruda, complemented by vaccines such as Gardasil against human papillomavirus, as well as products in the areas of cardiometabolics, infectious diseases, and immunology. The second segment, Animal Health, develops and markets medications and vaccines for livestock and companion animals and has recently grown significantly faster than the Group average. Sales in this segment totaled $1.8 billion in the second quarter. The portfolio is supplemented by other revenue from manufacturing agreements with third parties.
Source: StocksGuide AI
The company therefore derives the vast majority of its revenue from patent-protected, high-margin pharmaceuticals, although its pricing power is subject to regulatory pressure. Geographically, Merck & Co. generates a significant portion of its revenue in the United States, but also has a substantial international presence in Europe and the Asia-Pacific region, where vaccines such as Gardasil and Capvaxive, in particular, are becoming increasingly important.
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The Group’s research and development intensity ranks among the highest in the entire pharmaceutical industry, underscoring both the continuous renewal of its pipeline and its ability to make major strategic acquisitions, such as the recent acquisition of Terns.
The management team, led by the long-serving CEO, pursues a strategy based on three elements: organic growth of existing blockbuster products, targeted acquisitions to expand the pipeline, and reliable returns of capital to shareholders.
Source: StocksGuide AI
When it comes to capital allocation, Merck & Co. takes a disciplined yet growth-oriented approach. The acquisition of Terns Pharmaceuticals, announced in 2026, specifically strengthens the hematology pipeline and was explicitly communicated by management as a step toward diversification beyond Keytruda. At the same time, the company has launched a $10 billion share repurchase program. The dividends, which have been paid continuously for decades, are an integral part of this reallocation policy.
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Merck & Co.’s competitive moat is fueled by several factors: one of the industry’s largest research and development budgets, a robust patent portfolio, high regulatory barriers to market entry for competitors, and established distribution networks with hospitals, insurance companies, and health authorities worldwide. The company’s strong market position with Keytruda also affords it a certain degree of pricing power, even though this is increasingly being constrained by price negotiations under the U.S. healthcare reform and by European reimbursement systems.
The global pharmaceutical market—particularly the immuno-oncology segment—is among the fastest-growing and, at the same time, most intensely competitive sub-sectors of the healthcare industry. Drivers include the rising global incidence of cancer, an aging population in developed countries, and a growing middle class with better access to healthcare in emerging markets such as China, India, and parts of Latin America. At the same time, the market is characterized by significant regulatory pressure, lengthy approval processes, and the risk of expiring patents, which allow competitors to enter the market via biosimilars.
Source: Market Cap
Merck & Co.’s main competitors include Pfizer and Bristol-Myers Squibb, which compete directly with it, particularly in oncology and immunotherapy—for example, with Bristol-Myers’ drug Opdivo, which, like Keytruda, targets the PD-1 signaling pathway.
Other major competitors include Johnson & Johnson and AbbVie, both of which are broadly diversified across oncology, immunology, and other therapeutic areas, as well as Eli Lilly, which has recently seen strong growth, particularly in the areas of diabetes and obesity. European companies such as Novartis and Roche also remain significant competitors in oncology. A normalized comparison of the peer group shows that all companies except Pfizer have performed well. With a 1,500 percent increase in market capitalization, Eli Lilly is far ahead of the pack.
Among the key opportunities are, first and foremost, the expansion of Keytruda into an ever-growing number of early-stage indications, as well as the new subcutaneous formulation Keytruda Qlex, which already contributed $463 million in revenue in the second quarter of 2026 and simplifies clinical processes. The new active ingredient Winrevair for pulmonary arterial hypertension grew by 75 percent during the same period and is considered one of the most important new growth drivers. The animal health division, with 5 percent growth, as well as expansion in Asia—particularly through vaccines such as Capvaxive—also offer growth potential. Management estimates the commercial potential of more than twenty new pipeline products at around $70 billion. For 2026 alone, revenue is forecast to reach “only” $67 billion. On the risk side, the single biggest factor is the patent expiration of Keytruda in 2028, which will very likely lead to significant revenue losses due to biosimilar competition once exclusivity ends. Added to this are regulatory pressures stemming from U.S. price negotiations under the Inflation Reduction Act, potential setbacks in clinical trials—such as the recent one involving Tulisokibart for systemic sclerosis—as well as a general reliance on a small number of blockbuster products. Supply chain risks and currency fluctuations between the U.S. dollar and the euro are also relevant for European investors. Added to this is the inherent risk of clinical setbacks: New active ingredients such as sacituzumab tirumotecan or tulisokibart must first prove themselves in further Phase 3 trials before they can actually become revenue drivers on the scale targeted by Merck & Co. Experience shows that the likelihood of all pipeline projects reaching market maturity as planned is limited, which is why the aforementioned $70 billion in commercial potential should be viewed as a target figure rather than a guaranteed forecast. Geopolitical tensions, such as those related to trade tariffs on pharmaceutical imports into the U.S., are also among the politically driven risk factors, the extent of which is currently difficult to quantify.
In the second quarter of 2026, Merck & Co. generated total global revenue of $16.6 billion, representing growth of 5 percent, or 4 percent on a currency-adjusted basis. On the earnings side, the quarter was significantly weaker: The loss per share under GAAP was $0.54, while the adjusted non-GAAP loss per share was $0.13. This was due to a one-time charge of $2.31 per share related to the acquisition of the Terns pipeline and the associated portfolio. Excluding this one-time item, the operating business would have been profitable.
Source: Financial data
A look at sales in the pharmaceutical portfolio reveals more. Sales of Keytruda and the new formulation Keytruda Qlex rose to $8.4 billion, an increase of 5 percent and 4 percent, respectively, on a currency-adjusted basis, with $463 million of that amount attributable to the new subcutaneous formulation alone. Winrevair showed particularly strong growth, with sales jumping 75 percent to $588 million. The animal health division grew by 8 percent, or 5 percent on a currency-adjusted basis, to $1.8 billion, driven by both livestock and companion animal products. On the regulatory front, Merck & Co. received U.S. approval during the reporting quarter for Lipfendra, the first oral PCSK9 inhibitor for lowering LDL cholesterol, which could expand the addressable market beyond previously available injectable alternatives.
Source: Earnings Call
During the accompanying earnings call on August 4, 2026, management emphasized accelerated pipeline derisking: Several compounds, including sacituzumab tirumotecan, IDXD, and tulisokibart, had delivered proof-of-concept results earlier than originally expected. Overall, the company sees commercial potential of approximately $70 billion in more than twenty new products. According to management, Merck & Co. is primarily pursuing a strategy of market expansion for Lipfendra by improving access for patients who prefer oral therapies over injectable alternatives, rather than primarily displacing existing PCSK9 inhibitors. Regarding the Terns acquisition, the strategic strengthening of the hematology division was highlighted, while business development as a whole remains disciplined yet growth-oriented.
Merck & Co. significantly adjusted its forecast for the full year 2026 as part of its Q2 earnings report, painting a picture that initially appeared contradictory: The revenue outlook was raised slightly, while the earnings per share forecast was slashed dramatically. However, both adjustments are entirely attributable to the Terns acquisition. Management now expects revenue of $66.3 billion to $67.3 billion, up from the previous range of $65.8 billion to $67 billion—a moderate increase that reflects solid operational growth in Keytruda, Winrevair, and the animal health division. The non-GAAP gross margin, on the other hand, is expected to be slightly lower at around 81 percent compared to the previous forecast of around 82 percent, indicating some margin pressure, possibly due to pricing effects or a changed product mix. The most notable outlier concerns operating expenses: These have been raised from the previously projected range of $36 to $36.8 billion to the current range of $42 to $42.7 billion—a jump of approximately $6 billion, which is almost entirely attributable to the aforementioned one-time charge of $5.8 billion related to the Terns acquisition. Other expenses are also expected to rise only slightly, from approximately $1.3 billion to approximately $1.4 billion. The expected effective tax rate has also changed significantly: it is now projected at 35 to 36 percent, up from the previous range of 23.5 to 24.5 percent. This unusually sharp increase stems from the fact that the extraordinary expense from the Terns transaction can only be claimed to a limited extent for tax purposes, causing the effective tax burden to rise disproportionately relative to adjusted earnings. Taken together, these effects lead to a drastic reduction in the non-GAAP earnings per share forecast: Instead of the previously announced $5.04 to $5.16, the company now expects only $2.66 to $2.76—a decline of nearly half. With the number of shares remaining virtually unchanged at approximately 2.48 billion, the effect is driven not by dilution but exclusively by costs. For investors, the key takeaway is that the massive earnings revision does not represent an operational warning sign, but rather an accounting consequence of the Terns acquisition. This development could also be classified as conservative, as few burdens from the acquisition are expected in the future. The underlying business—driven by Keytruda, Winrevair, and the animal health division—continues to perform solidly, according to the revised revenue forecast. Anyone evaluating the stock should therefore distinguish between the GAAP/non-GAAP earnings, which are impacted by one-time charges, and the adjusted operating profitability, which more closely reflects the actual fundamental picture.
Source: Sales and Margin forecast
Analysts consider revenue of $67.5 billion in 2026, with a net margin of 10.6 percent, to be realistic. In the medium term, however, both revenue and margins are likely to decline as the Keytruda patent expires. An operational turnaround might not be achieved until 2032.
Merck & Co. has long pursued a strategy of continuous, moderately growing dividend payments, which underscores the stock’s character as a defensive dividend play. In the dividend analysis, the pharmaceutical stock achieves a score of 12 points, making it the top performer in the investment strategy.
Source: Dividend analysis
The current dividend yield stands at around 2.6 percent, which is in line with many large pharmaceutical companies but below the company’s long-term average of 3.1 percent over the past ten years. The payout ratio for the past three years is 66 percent of earnings, which is considered solid and financially sustainable without unduly restricting the company’s ability to innovate.
Source: Dividend analysis
What is noteworthy, however, is the continuity: Merck & Co. has kept its dividend stable or increased it for ten consecutive years, which points to financial stability and a reliable free cash flow that most recently stood at 14 billion U.S. dollars. Dividend growth over the past five years averaged 6.8 percent per year, representing moderate but steady growth. For income-oriented investors, this means a combination of above-average reliability and a yield that is currently slightly below average but stable, the future trajectory of which is likely to be closely linked to the outcome of the Keytruda patent expiration. Compared to other major pharmaceutical stocks such as Johnson & Johnson or Pfizer, Merck & Co. ranks in the middle in terms of dividend yield but stands out with a history of uninterrupted payments that is longer than the industry average.
Source: Dividend Yield
A key factor in the sustainability of the company’s future dividend policy will be whether free cash flow remains at a level—even after Keytruda’s patent expires—that allows for both research investments and a growing dividend.
Merck & Co.’s valuation can only be meaningfully assessed in the context of Keytruda’s impending patent expiration. On a trailing twelve-month basis, the stock has a price-to-earnings ratio of around 36, though this figure is significantly distorted by one-time charges related to the Terns acquisition.
Source: key metrics
Based on analysts' earnings forecasts for the coming years, the P/E ratio will initially rise but then decline to around 13 starting in 2027. This brings it closer to the stock's historical average and in line with many competitors.
Source: EPS
Based on the enterprise value-to-free cash flow ratio (EV/FCF), the stock is trading at a multiple of approximately 25.6, while the enterprise value-to-EBITDA ratio (EV/EBITDA) stands at 15.7. Profitability metrics are solid: Return on equity stands at 34.7 percent, return on capital employed (ROCE) at 16.4 percent, and the gross margin of 78.1 percent underscores the pricing power of patent-protected drugs. The operating margin of 25.4 percent demonstrates the fundamental profitability of the business model, even though the net margin was pushed down to 13.6 percent in the reporting quarter due to extraordinary expenses. On the balance sheet, the Group has net debt of approximately $43.4 billion and a debt-to-equity ratio of 1.1, which can be considered well sustainable given the stable cash flow. For investors, this means that, overall, the current valuation cannot be classified as either clearly undervalued or obviously overvalued, but rather depends largely on the level of confidence one has in management’s pipeline strategy.
Merck & Co. remains one of the world’s leading pharmaceutical companies and has a clear equity story. A dominant position in cancer immunotherapy with Keytruda, a growing, diversified pipeline, and a solid dividend history form the foundation on which shareholders are expected to place their trust. The second quarter of 2026 exemplifies the company’s current duality: robust operating revenue growth coupled with burdensome extraordinary expenses from strategic acquisitions. The accounting treatment can be viewed as conservative, which speaks in management’s favor. However, it remains to be seen whether the pipeline will deliver on management’s promises. The key question for the coming years is how successfully Merck & Co. will be able to offset the revenue loss resulting from the expiration of Keytruda’s patent in 2028. The valuation appears acceptable based on expected earnings, but it already reflects a certain degree of confidence in the pipeline.
Source: Target price
Most analysts view the company positively, but they unanimously highlight the risk of patent expirations as a key source of uncertainty. Overall, they see a price target of 5% to $135.15. If that’s not enough for you but you still find the stock interesting, you can set an alert here on aktien.guide. A Levermann Score of 4 can be helpful, as can an EV/Sales ratio of 4.
The author and/or persons or companies associated with StocksGuide own or may own shares of Merck & Co. This article represents an expression of opinion and does not constitute investment advice. Please note the legal information.