Skip to Content
Stock Analyst Update

Merck Posts Steady Q4; CEO Ken Frazier to Retire

The company announced CFO Robert Davis will succeed Frazier on July 1. We view the transition in leadership as natural.


Merck (MRK) reported fourth-quarter results largely in line with our expectations, and we don’t expect any major changes to our fair value estimate. We continue to view the company as undervalued with the market not fully appreciating the firm’s growth potential, largely driven by cancer drug Keytruda in new indications, which should add high-margin sales and expand profit margins.

In tandem with the earnings release, Merck announced the retirement of Ken Frazier as CEO and the appointment of current CFO Robert Davis to serve as the next CEO, effective July 1. We view the transition in leadership as natural, as Frazier had recently passed Merck’s guidelines on the maximum retirement age. Davis’ strong background in the industry and with Merck is likely to mean a continuity of strategic focus on areas of unmet medical needs.

On the strategic side, Merck is on track to spin off its Organon business (largely women’s health drugs) late in the second quarter. The divestiture represents close to 14% of total Merck sales and should allow the remaining business to grow more quickly after shedding these more mature brands. Also, Merck will receive a $8.5 billion-$9 billion special dividend, which we expect it will use to bolster the pipeline.

In the quarter, total sales increased 5%, led by 27% growth from Keytruda, offsetting declines from mature drugs and pressures from the COVID-19 pandemic. Although it represents over 30% of Merck’s total sales, we still expect significant growth from the drug based on increasing penetration in currently approved indications and the likely approval in earlier lines of therapy. We expect Merck will redeploy these growing cash flows to develop the next generation of drugs, critical to the firm’s wide moat. With Keytruda’s patent protection likely through 2028 (and longer in some geographies), we believe the firm has plenty of time to develop new innovative drugs.


Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Damien Conover does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.