Should You Buy MRK Stock At $80?

Core Viewpoint - Merck's stock has declined by 22% this year, underperforming the S&P 500 index, which is down only 1%, due to lowered guidance for 2025 and concerns about the long-term growth of its key drugs, Keytruda and Gardasil [1][2] Financial Performance - Merck's revenues have grown 4.1% from $60 billion to $64 billion in the last 12 months, compared to a 5.5% growth for the S&P 500 [8] - The company has seen its top line grow at an average rate of 5.8% over the last three years, slightly outperforming the S&P 500's 5.5% [8] - Merck's operating income over the last four quarters was $20 billion, with a high operating margin of 31.9%, compared to 13.2% for the S&P 500 [8] - The net income for the last four quarters was $17 billion, indicating a net income margin of 27.3%, significantly higher than the S&P 500's 11.6% [8] Valuation Metrics - Merck's price-to-sales (P/S) ratio is 3.1, compared to 3.0 for the S&P 500, while its price-to-earnings (P/E) ratio is 11.3 versus the benchmark's 26.4 [8] - The price-to-free cash flow (P/FCF) ratio for Merck is 9.4, compared to 20.5 for the S&P 500, indicating a lower valuation [8] Market Concerns - Weak sales of Gardasil in China have raised investor concerns, and Keytruda is approaching the end of its market exclusivity in 2028, which could impact future revenue [2][12] - Despite these concerns, the current valuation of Merck appears low, suggesting that negatives may already be priced into the stock [2] Financial Stability - Merck's debt was $35 billion at the end of the most recent quarter, with a market capitalization of $196 billion, resulting in a moderate debt-to-equity ratio of 17.7% [13] - Cash and cash equivalents amount to $14 billion of the total $117 billion in assets, yielding a cash-to-assets ratio of 12.0% [13] Downturn Resilience - Merck's stock has shown slightly better performance than the S&P 500 during recent downturns, indicating resilience [10] - Historical data shows that Merck's stock has recovered from significant declines during past market crises, including a 65.5% drop during the 2008 financial crisis [14]