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Today's Bonus Story
Merck Just Made a Big Bet on a New Cancer Growth EngineReported by Jessica Mitacek. Publication Date: 3/31/2026. 
Key Points
- Merck is set to acquire Terns Pharmaceutical for $6.7 billion, adding its promising leukemia treatment to its growing hematology and cancer pipeline.
- This is Merck’s third multi-billion dollar deal in a year, a bolt-on strategy projected to drive a $70 billion commercial opportunity by the mid-2030s.
- With an average five-year gross margin of 73% and 14 consecutive years of dividend increases, Merck remains a top-tier performer with a Moderate Buy rating.
- Special Report: Elon’s “Hidden” Company
While the health care sector has struggled this year, that hasn’t been true for all of Big Pharma. Shares of New Jersey-based Merck & Co. (NYSE: MRK) have outperformed the sector and the broad market, rising by more than 12%.
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The drugmaker’s stock recently got a boost after news that it would acquire Terns Pharmaceuticals—a move that will not only bolster its cancer treatment pipeline but also reinforce Merck’s reputation as a leading serial acquirer. Merck’s market cap is now more than $296 billion, placing it third behind Eli Lilly (NYSE: LLY) and AbbVie (NYSE: ABBV), at roughly $830 billion and $370 billion, respectively. Merck’s Terns Acquisition Is a Pivotal Oncology PlayOn March 25, Merck announced it had reached an agreement to acquire Terns, a clinical-stage oncology company developing therapies including TERN-701, an oral allosteric BCR–ABL1 inhibitor for chronic myeloid leukemia. According to the press release, Merck will acquire Terns for $53 per share in cash, for an approximate equity value of $6.7 billion. Merck said the deal further builds its presence in hematology with a “potential best-in-class candidate for the treatment of certain patients with chronic myeloid leukemia.” The Terns deal is the third multi-billion-dollar acquisition for Merck over the past year. Although still clinical-stage, TERN-701 has shown promising activity with “encouraging rates of molecular response and deep molecular response,” including responses in patients with high disease burden who previously received multiple lines of therapy. M&A Activity Has Helped Support Merck’s Earnings and Dividend ProfileMerck’s ability to secure deals like Terns underscores its central role in the pharmaceutical industry and contributes to a strong earnings track record. The company has missed analyst estimates only once in the past 19 quarters, dating back to Q2 2021. When the company reported Q4 2025 financials on Feb. 3, it posted earnings per share (EPS) of $2.04, topping expectations of $2.01, and revenue of $16.40 billion, above the expected $16.19 billion. With a forward price-to-earnings multiple of 16.45, Merck’s EPS is forecast to grow by nearly 10% over the next year, from $9.01 to $9.90. In his earnings call, CEO Rob Davis attributed the company’s steady growth to new product launches, progress in key clinical programs, and added scale in respiratory and infectious diseases from the Verona Pharma and Cidara Therapeutics acquisitions. "As a result of this progress, we now have line of sight to over $70 billion of potential commercial opportunity by the mid-2030s, $20 billion more than just a year ago and more than double consensus 2028 peak Keytruda revenue of $35 billion," Davis said. While those revenue forecasts are attractive to current shareholders and prospective investors, the bigger takeaway is the rapid scale the company has achieved through its acquisitions strategy. That M&A activity—in addition to the recent Terns announcement—has become a hallmark for Merck. The Verona Pharma and Cidara Therapeutics deals, valued at about $10 billion and $9.2 billion respectively, were followed by the Terns announcement valued at roughly $6.7 billion. Merck continues to execute a bolt-on acquisition strategy to diversify its oncology, immunology, and infectious disease pipeline. Seamlessly integrating these biotech firms into its portfolio accelerates growth, expands market share, and reduces hurdles when entering new markets. As a result, the company has maintained a five-year average gross margin above 73%. These high and expanding margins indicate strong pricing power and operational efficiency, which together enable Merck to sustain and grow its dividend, currently yielding 2.84% or $3.40 per share annually. While dividends are common among mature health care companies—especially large pharmaceutical and established managed-care firms—Merck stands out. The company has increased its payout for 14 consecutive years and posts a five-year dividend growth rate of 5.75%. How Wall Street Feels About MerckBased on 18 analysts currently covering the stock, Merck carries a consensus Moderate Buy rating, with 11 analysts assigning MRK a Buy. The average one-year price target of $127.13 implies upside of more than 7%. Institutional ownership remains above average at more than 76%, with inflows of nearly $37 billion exceeding outflows of about $19 billion over the past 12 months. Meanwhile, current short interest of just 1.18% of the float—roughly 29 million of the 2.47 billion shares outstanding—suggests bears are keeping their distance. Merck has been in the green zone on TradeSmith’s financial health indicator for more than six months, and the company scores higher than 93% of the firms evaluated by MarketBeat, ranking 39th out of 858 stocks in the medical sector. |
