EUR 850.00 For Business Accounts Only

Morningstar | Merck KGaA Posts Solid Fourth Quarter with 2019 Outlook Near Our Estimate

Merck KGaA wrapped up 2018 with results mostly in line with our expectations, including $3.8 billion in EBITDA for the year. Management’s outlook for this year of modestly positive revenue growth and high-single-digit EBITDA growth including modest currency headwinds also mostly matches our forecast. We don’t anticipate a material shift to our fair value estimate as we make a few adjustments to our model, but the potential approval of oral multiple sclerosis medication Mavenclad in the U.S. later this year could spur a modest improvement in our outlook.

Following the sale of its consumer health business, Merck’s EUR 5.3 billion bid for Versum Materials doesn’t dramatically shift our thinking on the firm’s narrow economic moat at this time, especially as Versum has rejected the offer. Merck’s attempts to diversify its performance materials business away from liquid crystals makes sense with Versum’s more specialty-oriented products. Regardless, we still have concerns over the longer-term decline in the liquid crystal business, which management expects to erode further following an additional couple of quarters of the recent benefit we’ve seen from temporary manufacturing expansion in China.

We still view the life sciences segment as one of the strongest contributors to the firm’s growth outlook and economic moat. Another quarter of double-digit growth in the process solutions market, which includes primarily manufacturing products to the biopharma customer group, led the overall impressive 8.8% life science segment organic growth witnessed during the quarter. While we don’t anticipate this level of growth is sustainable over the long term, we still expect this segment to be the most reliable of Merck’s businesses.