Using an unlevered Free Cash Flow to Firm (FCFF) model, we project Merck & Co., Inc.'s cash flows over 5 years with line-by-line expense modeling. Revenue is projected revenue growing from 2.7% to -0.6% annually, with expenses (COGS, SG&A, R&D) held at historical ratios. Depreciation is computed from a vintage matrix based on a 5-year useful life. Working capital is modeled using historical turnover days (DSO 64, DPO 107, DIO 155). At a 7.7% WACC with mid-year discounting, the terminal value (82% of enterprise value) is derived by applying the industry peer median EV/EBITDA multiple of 14.9x to Year 6 EBITDA. After subtracting net debt, the equity value implies a fair price of $115.99 per share, suggesting MRK is fairly valued by 2.8% at the current price of $119.29.
Adjust parameters to explore scenarios. Changes are for exploration only and do not affect saved valuations.
| 2026 | 2027 | 2028 | 2029 | 2030 | Terminal | |
|---|---|---|---|---|---|---|
| Profit Before Tax | 17,578 | 18,482 | 19,692 | 19,631 | 19,518 | 20,006 |
| (−) Net Interest | 957 | 1,006 | 1,072 | 1,068 | 1,062 | 1,089 |
| (+) D&A | 4,037 | 4,069 | 4,162 | 4,422 | 4,778 | 4,898 |
| EBITDA | 22,571 | 23,557 | 24,925 | 25,122 | 25,359 | 25,993 |
| (−) Tax | 4,571 | 4,807 | 5,121 | 5,105 | 5,076 | — |
| (−) CapEx | 4,612 | 4,849 | 5,167 | 5,151 | 5,121 | — |
| (−) ΔWC | -1,008 | 716 | 959 | -48 | -89 | — |
| Free Cash Flow (FCF) | 14,395 | 13,185 | 13,679 | 14,914 | 15,251 | — |
| Peers' EBITDA Multiple | 14.9x | |||||
| Terminal Value | 387,030 | |||||
| WACC / Discount Rate | 7.68% | |||||
| Timing of FCF (mid year) | 0.5 | 1.5 | 2.5 | 3.5 | 4.5 | 5 |
| Present Value of FCF | 13,873 | 11,800 | 11,368 | 11,511 | 10,931 | 267,332 |
| Enterprise Value | 326,814 | |||||
| Projection Period | 59,483 | 18.2% | ||||
| Terminal Value | 267,332 | 81.8% | ||||
| (−) Current Net Debt | 35,969 | |||||
| Equity Value | 290,845 | |||||
| (÷) Outstanding Shares | 2507M | |||||
| Fair Price | $116 | -2.7% | ||||
| WACC \ EV/EBITDA Exit Multiple | 10.9x | 12.9x | 14.9x | 16.9x | 18.9x |
|---|---|---|---|---|---|
| 5.7% | $96 | $112 | $128 | $143 | $159 |
| 6.7% | $92 | $107 | $122 | $137 | $152 |
| 7.7% | $87 | $102 | $116 | $130 | $145 |
| 8.7% | $83 | $97 | $111 | $124 | $138 |
| 9.7% | $79 | $93 | $106 | $119 | $132 |
Current price: $119.29. Green = undervalued, Red = overvalued.
Based on default parameters
This is an unlevered Free Cash Flow to Firm (FCFF) model with a 5-year projection period. Revenue, expenses, D&A, and working capital are projected using the same line-by-line approach as the Growth Exit models. The key difference is the terminal value methodology: instead of assuming perpetual cash flow growth, the terminal value is calculated by applying the industry peer median EV/EBITDA multiple to the projected Year 6 EBITDA.
Using a peer exit multiple anchors the terminal value to how the market currently prices comparable companies, rather than relying on a theoretical perpetual growth assumption. This approach captures relative valuation dynamics and is particularly useful when a company is expected to converge toward industry-average profitability over time. The sensitivity matrix shows how fair value changes across different WACC and EV/EBITDA multiple scenarios.