Merck & Co., Inc. (MRK) vs RTX Corporation (RTX): Which Is the Better Buy in 2026?
As of 2026-09-17, MRK is undervalued at $147, with a DCF intrinsic value of $596 and a margin of safety of 75%. RTX is overvalued at $194, with an intrinsic value of $110 and a margin of safety of -76%. Of the two, MRK has the wider margin of safety.
Rewards
- ★Gross margin of 75.9% indicates strong pricing power — typical of businesses with significant intellectual property or brand strength.
- ★Each dollar of retained earnings has created $4.94 of earning power — management is an exceptional capital allocator.
- ★Management has timed buybacks well — 2 out of 3 years showed value-accretive repurchases.
- ★Free cash flow has grown at a 19.2% CAGR over the past 4 years, demonstrating strong earnings power growth.
- ★Each dollar of retained earnings has created $3.48 of earning power — management is an exceptional capital allocator.
Risks
- ⚠PEG ratio of 2.65 indicates the stock is expensive relative to its expected growth — the market may be pricing in more growth than analysts project.
- ⚠7 insider sales totaling $30.0M with no purchases in the past 3 months — insiders are reducing their exposure.
- ⚠Free cash flow has declined at a 5.6% CAGR over the past 4 years — a concerning trend.
- ⚠Gross margin of 20.3% is low, suggesting a competitive or commodity-like market with limited pricing power.
- ⚠PEG ratio of 2.28 indicates the stock is expensive relative to its expected growth — the market may be pricing in more growth than analysts project.
- ⚠Insiders have sold $6.9M worth of stock in the past 3 months — significant insider liquidation.
Key Valuation Metrics
Learn more →Historical Fundamentals
Learn more →Price ÷ Earnings Per Share — how many years of current earnings you're paying for at today's price. Lower P/E may indicate undervaluation. The dashed forward point is the forward P/E — today's price ÷ analyst consensus EPS.
Price ÷ Earnings Per Share — how many years of current earnings you're paying for at today's price. Lower P/E may indicate undervaluation. The dashed forward point is the forward P/E — today's price ÷ analyst consensus EPS.
Price ÷ Earnings Per Share — how many years of current earnings you're paying for at today's price. Lower P/E may indicate undervaluation. The dashed forward point is the forward P/E — today's price ÷ analyst consensus EPS.
$1 Retained Earnings Test
Learn more →> $1 created per $1 retained = Value Creator · < $1 created = Value Destroyer
> $1 created per $1 retained = Value Creator · < $1 created = Value Destroyer
Buffett's "$1 Test": For every $1 of earnings retained, has management created at least $1 of market value?
> $1 created per $1 retained = Value Creator · < $1 created = Value Destroyer
Discounted Cash Flow (DCF) Analysis
Learn more →Reverse DCF — Market-Implied Growth
Learn more →What growth rate is the market pricing in at $147?
The market implies +8.1% Owner Earnings growth, below historical trends — potential opportunity.
Standard FCF implies a more demanding +11.8%, reflecting heavy growth investment expected to generate future returns.
What growth rate is the market pricing in at $194?
The market implies +15.9% Owner Earnings growth, above historical trends.
Standard FCF implies a demanding +13.0%, reflecting heavy growth investment.
Economic Moat Score
Learn more →Narrow moat with revenue predictability as the key competitive advantage. Improving margin stability would strengthen the moat.
Narrow moat with revenue predictability as the key competitive advantage. Improving roic consistency would strengthen the moat.
Forensic Accounting
Learn more →M-Score Trend
M-Score Trend
Beneish's 8-variable model estimates the probability of earnings manipulation. An M-Score above -1.78 signals elevated risk — companies in this range have historically been 3-5× more likely to be manipulating earnings. Scores between -2.22 and -1.78 fall in a grey zone warranting further investigation.
Ownership Breakdown
Learn more →High insider ownership aligns management incentives with shareholders. Institutional concentration can indicate smart-money conviction but also crowding risk.
Insider Buying Activity
Learn more →Open market purchases · includes direct & indirect ownership · excludes option exercises.
Insider Selling Activity
Learn more →Direct ownership only · excludes indirect, option exercises, planned (10b5-1) sales & derivatives.
🎭 Mr. Market's Mood
Learn more →"Market is pricing this stock without strong emotion in either direction"
"Market is pricing this stock without strong emotion in either direction"
Composite sentiment score based on market signals. Inspired by Buffett’s "Mr. Market" allegory — fear = potential opportunity, greed = potential risk. Must be used alongside fundamental analysis, not in isolation.
⚖️ Buffett Signal
Learn more →The Buffett Signal cross-references market sentiment with DCF valuation. Configure the DCF Analysis above to generate a signal.
The Buffett Signal cross-references market sentiment with DCF valuation. Configure the DCF Analysis above to generate a signal.
Frequently Asked Questions: MRK vs RTX
Is Merck & Co., Inc. or RTX Corporation more undervalued in 2026?▼
Based on our discounted cash flow model, MRK trades at a 75.3% margin of safety (intrinsic value $596 vs. price $147), compared to RTX's -76.4% margin of safety (intrinsic $110 vs. $194).
Which stock has a wider economic moat, Merck & Co., Inc. or RTX Corporation?▼
MRK scores 68/100 (Narrow moat), while RTX scores 51/100 (Narrow moat). The moat score measures competitive advantage durability across ROIC consistency, margin stability, revenue predictability, and reinvestment efficiency.
Is RTX Corporation in financial distress?▼
RTX's Altman Z-Score of 2.6 places it in the Grey zone, signaling elevated bankruptcy risk. MRK scores 3.7 (Safe zone). The Altman Z-Score is a five-factor model that predicts insolvency within two years; scores below 1.81 indicate significant distress.
Which company has better free cash flow, Merck & Co., Inc. or RTX Corporation?▼
Merck & Co., Inc. (MRK) generates a 4.2% free cash flow yield, compared to RTX Corporation's 3.8%. A higher FCF yield means the business converts more of its market value into cash that can be returned to shareholders or reinvested.
Which stock has higher return on invested capital, Merck & Co., Inc. or RTX Corporation?▼
RTX earns 8.8% ROIC versus MRK's -0.1%. A higher ROIC means the company generates more profit per dollar of capital employed, a hallmark of durable competitive advantage in Buffett-style analysis.
Which dividend is safer, Merck & Co., Inc.'s or RTX Corporation's?▼
MRK's dividend earns a safety score of 79/100 (Safe), compared to RTX's 78/100 (Safe). MRK has raised its dividend for 3 consecutive years.