DCF Studio

    MRK · NYQ · Healthcare

    Merck & Co., Inc.

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 114.05

    Market price

    USD 146.87

    Implied upside

    -22.3%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    Value Per Share

    Perpetuity growth
    USD 114.05-22.3%
    Exit multiple
    USD 111.90-23.8%
    Market price
    USD 146.87

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn7bn15bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 67.0bnUSD 69.1bnUSD 71.3bnUSD 73.5bnUSD 75.8bn+3.1%
    EBITUSD 17.0bnUSD 17.5bnUSD 18.0bnUSD 18.6bnUSD 19.2bn+3.1%
    NOPATUSD 14.7bnUSD 15.1bnUSD 15.6bnUSD 16.1bnUSD 16.6bn+3.1%
    Add depreciation & amortisationUSD 4.9bnUSD 5.0bnUSD 5.2bnUSD 5.3bnUSD 5.5bn+3.1%
    Less capital expenditureUSD -4.3bnUSD -4.4bnUSD -4.5bnUSD -4.7bnUSD -4.8bn+3.1%
    Less increase in working capitalUSD -2.0bnUSD -2.1bnUSD -2.2bnUSD -2.2bnUSD -2.3bn+3.1%
    Free cashflow to firmUSD 13.2bnUSD 13.6bnUSD 14.1bnUSD 14.5bnUSD 15.0bn+3.1%
    Discount factor0.96560.90040.83950.78280.7299-
    Present valueUSD 12.8bnUSD 12.3bnUSD 11.8bnUSD 11.4bnUSD 10.9bn-3.8%
    Present Value Of The ForecastUSD 59.1bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.481Reported 0.226, pulled toward 1.0 (Blume)
    Cost of equity7.65%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 362.4bn88.0% of capital
    Total debtUSD 49.3bn12.0% of capital, book value as a proxy
    Tax rate13.7%Effective, capped at statutory
    WACC7.25%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 114.05

    82% of EV

    Forecast FCFF, final year
    USD 15.0bn
    Capex at depreciation, working capital in reinvestment
    USD 19.0bn
    Less reinvestment at g/ROIC (12.7% of NOPAT)
    USD -2.4bn
    Capitalised
    USD 16.6bn
    ROIC (reported)
    19.6%
    Terminal value, undiscounted
    USD 358.3bn
    Terminal value, discounted
    USD 261.6bn
    Enterprise value
    USD 320.7bn
    Less net debt
    USD 34.8bn
    Equity value
    USD 285.9bn

    Exit at 14.2x EBITDA

    Value per shareUSD 111.90

    81% of EV

    Terminal value, undiscounted
    USD 351.0bn
    Terminal value, discounted
    USD 256.2bn
    Enterprise value
    USD 315.3bn
    Less net debt
    USD 34.8bn
    Equity value
    USD 280.5bn

    Spread between methods: 2%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    5.25%161.59180.85207.07244.89304.27
    6.25%124.30134.83148.13165.48189.09
    7.25%100.03106.38114.05123.48135.40
    8.25%82.9787.0691.8497.51104.34
    9.25%70.3473.0976.2479.8684.10

    Outlined: this model. Green text: above today's price of 146.87. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year3.1%9.5%+6.3pp
    EBIT margin25.3%32.4%+7.1pp
    Discount rate7.2%6.3%-1.0pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.