Morningstar

Merck KGaA Delivers Weak End to 2022 and Conservative 2023 Outlook

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Securities In This Article
Merck KGaA
(MRK)

Narrow-moat Merck KGaA MRK delivered fourth-quarter results and 2023 guidance that were slightly lower than we anticipated. However, when considering cash flows generated in recent months, our euro-denominated fair value estimate has not changed; a mild adjustment to our U.S. dollar-related fair value estimate is only due to recent currency movements. Shares look likely to still trade slightly above intrinsic value.

Overall in 2022, Merck performed a bit weaker than we anticipated, despite its top- and bottom lines being helped by exchange-rate changes, particularly the stronger U.S. dollar (where a significant chunk of sales are generated) relative to the euro (in which most of its operating expenses are recognized). On an organic basis, sales grew 6% (13% reported) while adjusted EBITDA grew 6% (12% reported). By segment, life sciences (8% organic growth) led the way with continued strength in process solutions, which provides tools for the sticky manufacturing processes of biopharmaceutical firms. Merck’s healthcare segment turned in 6% organic growth, driven primarily by new products Bavencio (oncology) and Mavenclad (multiple sclerosis), while legacy product Erbitux (oncology) grew a bit on expansion in China and legacy product Rebif (multiple sclerosis) faced ongoing competitive pressure that led to a double-digit organic decline. Merck’s electronics segment (4% organic growth) reflected semiconductor solutions expansion (15% organic growth) while display solutions continued to drop (20% organic decline). While weaker than we anticipated, Merck’s adjusted EPS growth of 15% in 2022 outpaced long-term expected norms for Merck.

For 2023, management expects headwinds to emerge relative to that tough comparable period, as macroeconomic challenges mount and COVID-19-related sales contract while the pandemic turns into an endemic. Overall, the company’s outlook for 2023 looks weak to us and includes a potential decline in adjusted EBITDA on a constant-currency basis.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Julie Utterback, CFA

Senior Equity Analyst
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Julie Utterback, CFA, is a senior equity analyst, AM Healthcare, for Morningstar*. She focuses on medical technology and service companies. She covers managed care organizations including UnitedHealth, service providers like HCA, medical suppliers such as Baxter, and life sciences companies like Danaher. She is also the chairperson of the equity research team’s capital allocation methodology.

Before joining Morningstar in 2005, Utterback was an equity analyst at State Farm Insurance for several years. Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry, and initially she primarily covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Utterback holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign’s Gies College of Business. She also holds the Chartered Financial Analyst® designation.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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