Barclays cuts Merck KGaA to “equal weight,” trims price target to €120

Barclays downgraded Merck KGaA (ETR:MRCG) to "equal weight" from "overweight," reducing its price target by 20% to €120, following weaker second-quarter results and a cut to its full-year 2025 guidance. This revision reflects a delayed semiconductor recovery, the divestment of its Surface Solutions unit, and foreign exchange headwinds, leading Barclays to trim 2025-2027 sales and EBITDA forecasts. The brokerage cited significant near-term risks, including potential generic competition for Mavenclad, ongoing semiconductor demand uncertainty, and possible management changes, warranting a neutral stance despite the company's "cheap valuation" due to a lack of clear growth catalysts.

Analysis

Barclays has downgraded Merck KGaA to “equal weight” from “overweight,” accompanied by a significant 20% reduction in its price target to €120 from €150. This revision is a direct response to weaker second-quarter performance and a cut in the company's full-year 2025 guidance. The downgrade is underpinned by several material factors, including a delayed recovery timeline for the semiconductor business, the divestment of the Surface Solutions unit, and adverse foreign exchange impacts. Consequently, Barclays has trimmed its 2025-2027 sales forecasts by approximately 2% annually and its EBITDA pre-forecast by 2-3%, with 2025 EPS estimates now at €8.25, down from €8.56. The outlook is further clouded by a confluence of near-term risks, such as potential early U.S. generic competition for Mavenclad, competitive pressure on Ogsiveo from Immunome's Varegacestat, and uncertainty surrounding the CEO's succession. While Barclays acknowledges Merck KGaA's "cheap valuation," the heightened uncertainty and lack of immediate growth catalysts before the October 16 capital markets day warrant a more cautious, neutral stance.

Key Decisions for Investors

• Given the numerous near-term risks and lack of positive catalysts, investors should consider the stock's risk/reward profile carefully, as the 'cheap valuation' may not be enough to offset the potential for further negative sentiment.
• It is prudent to monitor the company's capital markets day on October 16 for any strategic updates that could provide clarity on growth prospects in the Healthcare and Life Sciences divisions.
• Investors should watch for any developments regarding the potential for early generic competition for Mavenclad and the competitive landscape for Ogsiveo, as these are key overhangs highlighted in the downgrade.