Merck's Subdued 2026 Outlook: What it Means After Q4 Results?

Merck MRK announced better-than-expected fourth-quarter results on Feb. 3. Along with its earnings release, the company issued a fresh earnings and sales outlook for 2026, which fell short of consensus expectations.

MRK said it expects revenues to be in the $65.5-$67.0 billion range in 2026. This range was lower than the then Zacks Consensus Estimate of $67.36 billion.

Adjusted earnings per share (EPS) are expected to be in the range of $5.00-$5.15. The adjusted EPS guidance was also lower than the then Zacks Consensus Estimate of $6.20. This guided range includes a one-time charge of $9 billion, or $3.65 per share, related to the acquisition of Cidara Therapeutics, which closed last month.

Merck expects 2026 growth to be supported by continued strength in its oncology portfolio, led by blockbuster PD-L1 inhibitor, Keytruda, along with higher sales from newly launched products and increased contributions from the Animal Health business segment. However, these gains are expected to be partly offset by an estimated $2.5 billion headwind from generic competition, the Inflation Reduction Act (IRA) price setting and the revised AstraZeneca deal for Koselugo.

Merck’s biggest revenue driver, Keytruda, recorded sales worth $31.7 billion in 2025, increasing 7% on a year-over-year basis. In 2026, Keytruda sales are expected to benefit from rapid uptake across earlier-stage indications and continued strong momentum in metastatic indications.

Merck’s Animal Health segment generated revenues of $6.4 billion, up 9% year over year, driven by higher demand for livestock products across all species and new product launches in Companion Animal. We expect the momentum to continue in 2026.

Merck’s new pulmonary arterial hypertension drug, Winrevair, delivered $1.4 billion in sales in 2025, reflecting continued strong demand worldwide. Meanwhile, Capvaxive, Merck’s new 21-valent pneumococcal conjugate vaccine, posted sales of $759 million in 2025. Management sees both products as key revenue drivers, with the potential to generate significant revenues over the long term, especially after Keytruda intravenous loses exclusivity in 2028.

Merck is also seeing a strong launch for Ohtuvayre, a first-in-class maintenance therapy for chronic obstructive pulmonary disease (COPD). Added to the portfolio through the 2025 acquisition of Verona, the drug generated $178 million in fourth-quarter 2025 sales. The company is continuing to invest in the U.S. launch of Ohtuvayre, which should expand patient reach and support growth in 2026.

Given Merck’s promising product portfolio and robust pipeline, backed by recent M&A deals, it remains to be seen whether these developments are able to support sustainable growth in 2026 and beyond, especially after Keytruda loses exclusivity in 2028.

MRK's Competition in the Target Market

Despite the strong potential of Merck’s new products, competitive pressure in the target market remains a major challenge.

Winrevair faces stiff competition in the PAH market, which remains highly competitive. Significant players in the PAH market are United Therapeutics UTHR and J&J JNJ.

United Therapeutics markets four drugs to treat PAH in the United States — Remodulin, Orenitram, Tyvaso and Adcirca. UTHR’s Tyvaso recorded sales of $1.41 billion, while Remodulin and Orenitram generated sales of $398.8 million and $375.7 million, respectively, in the first nine months of 2025.

J&J’s key PAH drugs include Opsumit and Uptravi. JNJ recorded revenues of $4.43 billion from its PAH franchise in 2025.

Ohtuvayre is also poised to face stiff competition from other established maintenance therapies for COPD, including GSK’s Trelegy Ellipta.

MRK's Price Performance, Valuation and Estimates

Over the past six months, shares of Merck have rallied 49%, compared with the industry’s 35.3% rise. The stock has also outperformed the sector and the S&P 500 during the same time frame, as seen in the chart below.

From a valuation standpoint, Merck appears attractive relative to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 18.16 forward earnings, lower than 18.85 for the industry but higher than its 5-year mean of 12.48.

The Zacks Consensus Estimate for 2026 earnings per share has declined from $8.50 to $6.16, while the same for 2027 has inched up from $10.04 to $10.05 over the past 30 days.

MRK's Zacks Rank

Merck currently has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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