Merck's Subdued 2026 Outlook: What it Means After Q4 Results?

Core Insights - Merck (MRK) reported better-than-expected fourth-quarter results but provided a 2026 earnings and sales outlook that fell short of consensus expectations [1][11] - The company anticipates revenues in the range of $65.5-$67.0 billion for 2026, lower than the Zacks Consensus Estimate of $67.36 billion [1][11] - Adjusted earnings per share (EPS) are projected to be between $5.00 and $5.15, also below the consensus estimate of $6.20, which includes a one-time charge of $9 billion related to the acquisition of Cidara Therapeutics [2][11] Revenue Drivers - Keytruda, Merck's leading oncology product, generated sales of $31.7 billion in 2025, reflecting a 7% year-over-year increase, with expectations for continued growth in 2026 [4][11] - The Animal Health segment reported revenues of $6.4 billion, up 9% year-over-year, driven by increased demand for livestock products and new launches in Companion Animal [5][11] - New products like Winrevair and Capvaxive are expected to be significant revenue contributors, with Winrevair achieving $1.4 billion in sales in 2025 and Capvaxive generating $759 million [6][11] Competitive Landscape - Merck faces strong competition in the pulmonary arterial hypertension (PAH) market, particularly from United Therapeutics and Johnson & Johnson [9][12] - United Therapeutics reported significant sales from its PAH drugs, with Tyvaso alone generating $1.41 billion [10] - Ohtuvayre, a new therapy for chronic obstructive pulmonary disease (COPD), is also expected to encounter competition from established therapies like GSK's Trelegy Ellipta [12] Market Performance and Valuation - Over the past six months, Merck's shares have increased by 49%, outperforming the industry average of 35.3% [13] - The company's price/earnings ratio stands at 18.16, which is lower than the industry average of 18.85 but higher than its 5-year mean of 12.48 [14] - The Zacks Consensus Estimate for 2026 EPS has decreased from $8.50 to $6.16, while the estimate for 2027 has slightly increased from $10.04 to $10.05 [15]