Skip to Content
Stock Analyst Update

Merck Reports Solid Q2, Buoyed by Hospital Drug Sales

We continue to view the stock as undervalued with the market not appreciating Merck’s strong immuno-oncology position and developing pipeline, key areas that reinforce our wide moat rating.


Merck (MRK) reported second-quarter results largely in line with our projections, and we don’t expect any major changes to our fair value estimate. We continue to view the stock as undervalued with the market not appreciating Merck’s strong immuno-oncology position and developing pipeline, key areas that reinforce our wide moat rating.

In the quarter, sales increased operationally by 19% (excluding the divested Organon business), supported by an unusually easy comparison with the second quarter of 2020 when pandemic concerns weighed on sales. Relative to the Big Pharma group, Merck sells a greater amount of hospital-administered drugs, which created amplified headwinds as patients avoided in-office visits over the peak of the pandemic; this trend is reversing as expected.

The company’s top drug Keytruda (over a third of total sales) posted 20% operational growth based on further entrenchment in several indications, including the most important market of lung cancer. We expect further gains for the drug in the adjuvant setting. Recent positive adjuvant data in breast and renal cancer bodes well for future growth and shows that early use of the drug could work well in the important lung cancer adjuvant setting (data expected later in 2021).

Merck’s vaccines and animal healthcare products bounced back as well. While the vaccines are lapping an easy comparable period, we expect strong growth for human papillomavirus vaccine Gardasil based on excellent efficacy and increasing supply capacity coming on line over the next two years.

On the pipeline, we are most bullish on HIV drug islatravir and several early-stage cancer drugs. The strong safety and efficacy of islatravir set up the drug well in several potential settings. Also, recent data from cancer drugs quavonlimab (CTLA-4) and favezelimab (LAG-3) with Keytruda suggests strong efficacy and the potential to extend the exclusivity period for Keytruda based on coformulation strategies.

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.