Decent Value Stocks. Analyze the stocks with a good fundamental valuation, while still showing decent profitability, health and growth.


MERCK & CO. INC.

New York Stock Exchange, Inc. / Health Care / Pharmaceuticals

Fundamental Rating

7

We assign a fundamental rating of 7 out of 10 to MRK. MRK was compared to 198 industry peers in the Pharmaceuticals industry. MRK gets an excellent profitability rating and is at the same time showing great financial health properties. MRK is valued quite cheap, while showing a decent growth score. This is a good combination! Finally MRK also has an excellent dividend rating. With these ratings, MRK could be worth investigating further for value and dividend and quality investing!.


Dividend Valuation Growth Profitability Health

8

1. Profitability

1.1 Basic Checks

In the past year MRK was profitable.
In the past year MRK had a positive cash flow from operations.
Each year in the past 5 years MRK has been profitable.
Each year in the past 5 years MRK had a positive operating cash flow.
MRK Yearly Net Income VS EBIT VS OCF VS FCFMRK Yearly Net Income VS EBIT VS OCF VS FCFYearly Net Income VS EBIT VS OCF VS FCF 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 5B 10B 15B 20B

1.2 Ratios

MRK has a better Return On Assets (14.62%) than 96.97% of its industry peers.
MRK has a better Return On Equity (36.96%) than 96.97% of its industry peers.
MRK's Return On Invested Capital of 19.77% is amongst the best of the industry. MRK outperforms 94.44% of its industry peers.
MRK had an Average Return On Invested Capital over the past 3 years of 20.13%. This is significantly below the industry average of 41.77%.
Industry RankSector Rank
ROA 14.62%
ROE 36.96%
ROIC 19.77%
ROA(3y)9.42%
ROA(5y)9.66%
ROE(3y)23.17%
ROE(5y)26.32%
ROIC(3y)20.13%
ROIC(5y)17.77%
MRK Yearly ROA, ROE, ROICMRK Yearly ROA, ROE, ROICYearly ROA, ROE, ROIC 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 10 20 30

1.3 Margins

The Profit Margin of MRK (26.68%) is better than 96.46% of its industry peers.
MRK's Profit Margin has been stable in the last couple of years.
MRK has a better Operating Margin (34.59%) than 95.96% of its industry peers.
MRK's Operating Margin has improved in the last couple of years.
The Gross Margin of MRK (78.19%) is better than 84.34% of its industry peers.
In the last couple of years the Gross Margin of MRK has grown nicely.
Industry RankSector Rank
OM 34.59%
PM (TTM) 26.68%
GM 78.19%
OM growth 3Y4.43%
OM growth 5Y7.18%
PM growth 3Y-0.15%
PM growth 5Y1.18%
GM growth 3Y3.55%
GM growth 5Y2.42%
MRK Yearly Profit, Operating, Gross MarginsMRK Yearly Profit, Operating, Gross MarginsYearly Profit, Operating, Gross Margins 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 20 40 60 80

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7

2. Health

2.1 Basic Checks

The Return on Invested Capital (ROIC) is well above the Cost of Capital (WACC), so MRK is creating value.
MRK has about the same amout of shares outstanding than it did 1 year ago.
The number of shares outstanding for MRK has been reduced compared to 5 years ago.
The debt/assets ratio for MRK has been reduced compared to a year ago.
MRK Yearly Shares OutstandingMRK Yearly Shares OutstandingYearly Shares Outstanding 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 500M 1B 1.5B 2B 2.5B
MRK Yearly Total Debt VS Total AssetsMRK Yearly Total Debt VS Total AssetsYearly Total Debt VS Total Assets 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 20B 40B 60B 80B 100B

2.2 Solvency

MRK has an Altman-Z score of 3.69. This indicates that MRK is financially healthy and has little risk of bankruptcy at the moment.
With a decent Altman-Z score value of 3.69, MRK is doing good in the industry, outperforming 79.80% of the companies in the same industry.
MRK has a debt to FCF ratio of 2.05. This is a good value and a sign of high solvency as MRK would need 2.05 years to pay back of all of its debts.
The Debt to FCF ratio of MRK (2.05) is better than 93.43% of its industry peers.
MRK has a Debt/Equity ratio of 0.74. This is a neutral value indicating MRK is somewhat dependend on debt financing.
MRK's Debt to Equity ratio of 0.74 is on the low side compared to the rest of the industry. MRK is outperformed by 66.67% of its industry peers.
Although MRK does not score too well on debt/equity it has very limited outstanding debt, which is well covered by the FCF. We will not put too much weight on the debt/equity number as it may be because of low equity, which could be a consequence of a share buyback program for instance. This needs to be investigated.
Industry RankSector Rank
Debt/Equity 0.74
Debt/FCF 2.05
Altman-Z 3.69
ROIC/WACC2.16
WACC9.17%
MRK Yearly LT Debt VS Equity VS FCFMRK Yearly LT Debt VS Equity VS FCFYearly LT Debt VS Equity VS FCF 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 10B 20B 30B 40B

2.3 Liquidity

A Current Ratio of 1.36 indicates that MRK should not have too much problems paying its short term obligations.
MRK's Current ratio of 1.36 is on the low side compared to the rest of the industry. MRK is outperformed by 76.26% of its industry peers.
A Quick Ratio of 1.15 indicates that MRK should not have too much problems paying its short term obligations.
The Quick ratio of MRK (1.15) is worse than 72.22% of its industry peers.
MRK does not score too well on the current and quick ratio evaluation. However, as it has excellent solvency and profitability, these ratios do not necessarly indicate liquidity issues and need to be evaluated against the specifics of the business.
Industry RankSector Rank
Current Ratio 1.36
Quick Ratio 1.15
MRK Yearly Current Assets VS Current LiabilitesMRK Yearly Current Assets VS Current LiabilitesYearly Current Assets VS Current Liabilites 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 10B 20B 30B

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5

3. Growth

3.1 Past

The Earnings Per Share has grown by an impressive 409.33% over the past year.
MRK shows quite a strong growth in Earnings Per Share. Measured over the last years, the EPS has been growing by 8.04% yearly.
The Revenue has been growing slightly by 6.74% in the past year.
The Revenue has been growing by 10.40% on average over the past years. This is quite good.
EPS 1Y (TTM)409.33%
EPS 3Y6.87%
EPS 5Y8.04%
EPS Q2Q%5633.33%
Revenue 1Y (TTM)6.74%
Revenue growth 3Y9.63%
Revenue growth 5Y10.4%
Sales Q2Q%6.79%

3.2 Future

Based on estimates for the next years, MRK will show a small growth in Earnings Per Share. The EPS will grow by 6.16% on average per year.
Based on estimates for the next years, MRK will show a small growth in Revenue. The Revenue will grow by 2.43% on average per year.
EPS Next Y18.6%
EPS Next 2Y14.32%
EPS Next 3Y13.3%
EPS Next 5Y6.16%
Revenue Next Year1.66%
Revenue Next 2Y3.96%
Revenue Next 3Y4.55%
Revenue Next 5Y2.43%

3.3 Evolution

The EPS growth rate is decreasing: in the next years the growth will be less than in the last years.
When comparing the Revenue growth rate of the last years to the growth rate of the upcoming years, we see that the growth is decreasing.
MRK Yearly Revenue VS EstimatesMRK Yearly Revenue VS EstimatesYearly Revenue VS Estimates 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 20B 40B 60B
MRK Yearly EPS VS EstimatesMRK Yearly EPS VS EstimatesYearly EPS VS Estimates 2014 2016 2018 2020 2022 2024 2026 2028 2030 2032 2 4 6 8 10

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9

4. Valuation

4.1 Price/Earnings Ratio

A Price/Earnings ratio of 10.25 indicates a reasonable valuation of MRK.
Compared to the rest of the industry, the Price/Earnings ratio of MRK indicates a rather cheap valuation: MRK is cheaper than 90.40% of the companies listed in the same industry.
MRK is valuated cheaply when we compare the Price/Earnings ratio to 27.63, which is the current average of the S&P500 Index.
A Price/Forward Earnings ratio of 8.64 indicates a reasonable valuation of MRK.
MRK's Price/Forward Earnings ratio is rather cheap when compared to the industry. MRK is cheaper than 90.40% of the companies in the same industry.
The average S&P500 Price/Forward Earnings ratio is at 20.85. MRK is valued rather cheaply when compared to this.
Industry RankSector Rank
PE 10.25
Fwd PE 8.64
MRK Price Earnings VS Forward Price EarningsMRK Price Earnings VS Forward Price Earnings ChartPrice Earnings - Forward Price Earnings PE FPE 5 10 15 20 25

4.2 Price Multiples

Based on the Enterprise Value to EBITDA ratio, MRK is valued cheaply inside the industry as 86.36% of the companies are valued more expensively.
Compared to the rest of the industry, the Price/Free Cash Flow ratio of MRK indicates a rather cheap valuation: MRK is cheaper than 89.90% of the companies listed in the same industry.
Industry RankSector Rank
P/FCF 10.89
EV/EBITDA 8.2
MRK Per share dataMRK EPS, Sales, OCF, FCF, BookValue per sharePer Share Data Per Share 5 10 15 20 25

4.3 Compensation for Growth

MRK's low PEG Ratio(NY), which compensates the Price/Earnings for growth, indicates a rather cheap valuation of the company.
The excellent profitability rating of MRK may justify a higher PE ratio.
A more expensive valuation may be justified as MRK's earnings are expected to grow with 13.30% in the coming years.
PEG (NY)0.55
PEG (5Y)1.28
EPS Next 2Y14.32%
EPS Next 3Y13.3%

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8

5. Dividend

5.1 Amount

With a Yearly Dividend Yield of 4.15%, MRK is a good candidate for dividend investing.
MRK's Dividend Yield is rather good when compared to the industry average which is at 4.72. MRK pays more dividend than 94.44% of the companies in the same industry.
MRK's Dividend Yield is rather good when compared to the S&P500 average which is at 2.51.
Industry RankSector Rank
Dividend Yield 4.15%

5.2 History

The dividend of MRK is nicely growing with an annual growth rate of 6.90%!
MRK has been paying a dividend for at least 10 years, so it has a reliable track record.
MRK has not decreased their dividend for at least 10 years, which is a reliable track record.
Dividend Growth(5Y)6.9%
Div Incr Years13
Div Non Decr Years33
MRK Yearly Dividends per shareMRK Yearly Dividends per shareYearly Dividends per share 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 1 2 3

5.3 Sustainability

MRK pays out 45.80% of its income as dividend. This is a bit on the high side, but may be sustainable.
The dividend of MRK is growing, but the earnings are growing slower. This means the dividend growth is not sustainable.
DP45.8%
EPS Next 2Y14.32%
EPS Next 3Y13.3%
MRK Yearly Income VS Free CF VS DividendMRK Yearly Income VS Free CF VS DividendYearly Income VS Free CF VS Dividend 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 5B 10B 15B
MRK Dividend Payout.MRK Dividend Payout, showing the Payout Ratio.MRK Dividend Payout.PayoutRetained Earnings

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