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Merck & Co., Inc. (MRK) Intrinsic Value

DCF-based fair value calculation with Bear, Base, and Bull scenarios

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Merck & Co., Inc. (MRK)

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Intrinsic Value (DCF)

Current$108.26
→
Intrinsic$159.12
+47%
$103.48$159.12$269.84
Market implies 4% growth for 5 years
DCF analysis suggests MRK could have 47% upside at 13% growth — verify assumptions match your view.
At $108, the market prices in only 4% growth — below historical 13%, suggesting low expectations.
Range: Bear $103 → Bull $270. Current price implies expectations below the base case, but well above the bear case.
Discount ↓Growth →9%11%13%15%
8%$199$218$237$259
10%$134$146$159$173
12%$99$108$118$128
14%$78$85$92$100

Bull Case

  • Bull case ($270) offers 149% upside at 15% growth, 8% discount
  • 32% margin of safety vs. base case estimate
  • Market-implied growth (4%) ≤ historical CAGR (13%)

Bear Case

  • Bear case ($103) implies 4% downside at 10% growth, 12% discount
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5-Year Free Cash Flow Projection

Year 1$20.39B
Year 2$22.97B
Year 3$25.88B
Year 4$29.16B
Year 5$32.85B
Terminal$520.62B

📐 Model Inputs

Growth Rate12.7%5Y CAGR (cascade: 5Y→3Y→TTM)
Discount Rate9.5%WACC estimate
Terminal Growth3.0%Perpetuity rate
Base Free Cash Flow$18.10BTTM actual
Bear g×0.8, r+2%
Base Historical CAGR
Bull g×1.2, r−1.5%
ℹ️

DCF estimates based on historical growth rates extrapolated forward. See FAQ below for full methodology.

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Frequently Asked Questions

Is MRK stock undervalued or overvalued?
🟢 UNDERVALUED

MRK trades at $108.26 vs. our DCF-derived intrinsic value of $159.12, implying +46% upside. At a 9.5% WACC and 12.7% projected FCF growth, the market appears to be underpricing the present value of MRK's future cash flows. The bear case ($105.61) still suggests upside, providing margin of safety.

What is MRK's intrinsic value?

Using a 5-year DCF model: Base FCF of $18.10B, projected at 12.7% 5Y CAGR (best of revenue, EPS, or FCF growth), discounted at 9.5% WACC, with 3.0% terminal growth. Terminal value calculated via Gordon Growth Model: TV = FCF₅ × (1+g) / (WACC−g). After deducting $25.03B net debt and dividing by 2.54B shares: Bear $105.61 | Base $159.12 | Bull $236.15. Current price $108.26 implies +46% to base case.

How is MRK's fair value calculated?

DCF Methodology:

① Project FCF years 1-5 using 12.7% growth derived from 5-year historical CAGR (best of revenue, EPS, or FCF growth, with 8% floor and 25% cap).

② Calculate terminal value at year 5 using perpetuity growth model with g=3.0%.

③ Discount all cash flows to PV using WACC=9.5%.

④ Sum PV of explicit period + PV of terminal value = Enterprise Value ($429.36B).

⑤ Subtract net debt, divide by shares outstanding.

Sensitivity analysis available above—adjust WACC ±2% or growth ±3% to stress-test the valuation. Implied EV/FCF multiple: 23.7x.