Merck stock (NYSE: MRK) lost about 10% in 2024, underperforming the broader S&P 500 index, which gained 23% for the year. Despite strong performances from other pharmaceutical giants like Eli Lilly stock (up 31%) and AbbVie stock(up 15%), Merck’s stock performance has been muted. This is attributed to declining sales of its blockbuster HPV vaccine – Gardasil – and an increased competition for some of its drugs, including Januvia. As an aside, new gaming products can be impactful. See Will New Switch Give A Boost To Nintendo Stock?
In this note, while we briefly touch upon Merck’s performance in 2024, we focus on the impact on MRK stock and how 2025 could turn out. But, if you want upside with a smoother ride than an individual stock, consider the High-Quality portfolio, which has outperformed the S&P, and clocked >91% returns since inception.
How Did 2024 Turn Out For Merck?
Three trends were clearly visible for Merck in 2024. Firstly, the cash cow – Keytruda – continued to gain market share with approval in more indications. Keytruda’s last twelve-month sales now stand at a whopping $28 billion, compared to $25 billion in 2023. Secondly, the next best-selling product – Gardasil – faced headwinds in China, resulting in its sales falling in the recent quarters. The last-twelve month period sales of $9 billion align with the figure reported in 2023. This comes after a stellar 31.5% annual average growth rate Gardasil posted in the last three years. A crackdown on the healthcare industry in China has impacted on the overall vaccination rate in China. Lastly, it saw an improvement in gross margins, thanks to lower royalty rates for Keytruda and Gardasil.
2024 was also the year where Merck looked at inorganic growth to expand its pharmaceuticals and animal health business. It acquired Elanco’s aqua business for $1.3 billion, Harpoon Therapeutics for $680 million, LaNova Medicines for $588 million, Curon for $750 million, and EyeBio for $1.3 billion, among others. Merck may continue to eye inorganic growth to combat with the fall in sales, when Keytruda sees biosimilar competition (likely in 2029). It will be a massive gap to bridge, given that Keytruda is one of the top-selling drugs globally.
What Does This Mean For MRK Stock?
MRK stock declined gradually from levels of $110 in early January last year to $99 by the end of 2024. Looking at a slightly longer term, the increase in MRK stock over the last four-year period has been far from consistent and has largely been as volatile as the S&P 500. Returns for the stock were 2% in 2021, 49% in 2022, 1% in 2023, and -6% in 2024.
The Trefis High Quality Portfolio, with a collection of 30 stocks, is less volatile. And it has comfortably outperformed the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.
Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could MRK face a similar situation as it did in 2021, 2023, and 2024 and underperform the S&P over the next 12 months — or will it see a strong jump? We estimate Merck’s Valuation to be $130 per share, reflecting a 30% upside from its current market price of $100. At its current levels, MRK stock is trading at 4x trailing revenues, compared to the stock’s average P/S ratio of 4.5x over the last three years.
What’s In Store For Merck In 2025?
2025 is likely going to be better for Merck. Keytruda is expected to continue to lead the growth, with its approval for more indications lately. However, Gardasil’s decline in China may continue to weigh on the company’s vaccine sales in 2025. Merck’s diabetes drugs – Januvia and Janumet – are likely to see increased competition. The company’s animal health business is likely to benefit from increased pet ownership in the U.S. We expect the company to maintain its higher gross margins on the back of better product mix.
Merck may also secure the regulatory approval for clesrovimab – an antibody for RSV treatment in infants. If approved, clesrovimab has the potential to garner $4 billion in annual peak sales. The U.S. FDA has set a deadline of June 10 to make a decision on approval of clesrovimab.
Overall, MRK stock looks like it will have more positives to aid it in 2025. With its stock trading at 4x trailing revenues, we think the potential headwinds for Gardasil are largely priced in.
While MRK stock looks like it can see higher levels, it is helpful to see how Merck’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Invest with Trefis Market Beating Portfolios
See all Trefis Price Estimates
Read the full article here
