Stock Analysis: Decent Value Stocks

Fundamental Rating

MRK gets a fundamental rating of 7 out of 10. The analysis compared the fundamentals against 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 scores decently on growth, while it is valued quite cheap. This could make an interesting combination. MRK also has an excellent dividend rating. This makes MRK very considerable for value and dividend and quality investing!

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.

In the past 5 years MRK has always been profitable.

In the past 5 years MRK always reported a positive cash flow from operatings.

1.2 Ratios

MRK's Return On Assets of 14.62% is amongst the best of the industry. MRK outperforms 96.97% of its industry peers.

With an excellent Return On Equity value of 36.96%, MRK belongs to the best of the industry, outperforming 96.97% of the companies in the same industry.

MRK has a better Return On Invested Capital (19.77%) than 94.44% of its industry peers.

The Average Return On Invested Capital over the past 3 years for MRK is significantly below the industry average of 41.77%.

		Industry Rank	Sector 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%

1.3 Margins

Looking at the Profit Margin, with a value of 26.68%, MRK belongs to the top of the industry, outperforming 96.46% of the companies in the same industry.

MRK's Profit Margin has been stable in the last couple of years.

MRK's Operating Margin of 34.59% is amongst the best of the industry. MRK outperforms 95.96% of its industry peers.

MRK's Operating Margin has improved in the last couple of years.

MRK's Gross Margin of 78.19% is amongst the best of the industry. MRK outperforms 84.34% of its industry peers.

In the last couple of years the Gross Margin of MRK has grown nicely.

		Industry Rank	Sector 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%

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ROA

ROE

ROIC

Operating and Profit Margin

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2. Health

2.1 Basic Checks

MRK has a Return on Invested Capital (ROIC), which is well above the Cost of Capital (WACC), which means it is creating value.

The number of shares outstanding for MRK remains at a similar level compared to 1 year ago.

MRK has less shares outstanding than it did 5 years ago.

The debt/assets ratio for MRK has been reduced compared to a year ago.

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.

MRK has a Altman-Z score of 3.69. This is in the better half of the industry: MRK outperforms 79.80% of its industry peers.

The Debt to FCF ratio of MRK is 2.05, which is a good value as it means it would take MRK, 2.05 years of fcf income to pay off all of its debts.

With an excellent Debt to FCF ratio value of 2.05, MRK belongs to the best of the industry, outperforming 93.43% of the companies in the same industry.

MRK has a Debt/Equity ratio of 0.74. This is a neutral value indicating MRK is somewhat dependend on debt financing.

Looking at the Debt to Equity ratio, with a value of 0.74, MRK is doing worse than 66.67% of the companies in the same industry.

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 Rank	Sector Rank
Debt/Equity	0.74
Debt/FCF	2.05
Altman-Z	3.69

ROIC/WACC2.16

WACC9.17%

2.3 Liquidity

MRK has a Current Ratio of 1.36. This is a normal value and indicates that MRK is financially healthy and should not expect problems in meeting its short term obligations.

With a Current ratio value of 1.36, MRK is not doing good in the industry: 76.26% of the companies in the same industry are doing better.

MRK has a Quick Ratio of 1.15. This is a normal value and indicates that MRK is financially healthy and should not expect problems in meeting its short term obligations.

MRK's Quick ratio of 1.15 is on the low side compared to the rest of the industry. MRK is outperformed by 72.22% of its industry peers.

The current and quick ratio evaluation for MRK is rather negative, while it does have excellent solvency and profitability. These ratios do not necessarly indicate liquidity issues and need to be evaluated against the specifics of the business.

		Industry Rank	Sector Rank
Current Ratio	1.36
Quick Ratio	1.15

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WACC

Debt/Equity

How to determine the health of a company

Altman-Z score

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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.

MRK shows a small growth in Revenue. In the last year, the Revenue has grown by 6.74%.

Measured over the past years, MRK shows a quite strong growth in Revenue. The Revenue has been growing by 10.40% on average per year.

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

The Earnings Per Share is expected to grow by 6.16% on average over the next years.

MRK is expected to show a small growth in Revenue. In the coming years, the Revenue will grow by 2.43% yearly.

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

When comparing the EPS growth rate of the last years to the growth rate of the upcoming years, we see that the growth is decreasing.

The Revenue growth rate is decreasing: in the next years the growth will be less than in the last years.

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4. Valuation

4.1 Price/Earnings Ratio

MRK is valuated reasonably with a Price/Earnings ratio of 10.19.

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's Price/Earnings ratio indicates a rather cheap valuation when compared to the S&P500 average which is at 27.63.

Based on the Price/Forward Earnings ratio of 8.59, the valuation of MRK can be described as reasonable.

Based on the Price/Forward Earnings ratio, MRK is valued cheaply inside the industry as 90.40% of the companies are valued more expensively.

The average S&P500 Price/Forward Earnings ratio is at 20.85. MRK is valued rather cheaply when compared to this.

		Industry Rank	Sector Rank
PE	10.19
Fwd PE	8.59

4.2 Price Multiples

86.36% of the companies in the same industry are more expensive than MRK, based on the Enterprise Value to EBITDA ratio.

Based on the Price/Free Cash Flow ratio, MRK is valued cheaper than 89.90% of the companies in the same industry.

		Industry Rank	Sector Rank
P/FCF	10.83
EV/EBITDA	8.2

4.3 Compensation for Growth

The 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.

MRK's earnings are expected to grow with 13.30% in the coming years. This may justify a more expensive valuation.

PEG (NY)0.55

PEG (5Y)1.27

EPS Next 2Y14.32%

EPS Next 3Y13.3%

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5. Dividend

5.1 Amount

MRK has a Yearly Dividend Yield of 4.15%, which is a nice return.

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.

Compared to an average S&P500 Dividend Yield of 2.51, MRK pays a better dividend.

		Industry Rank	Sector 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 paid a dividend for at least 10 years, which is 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

5.3 Sustainability

45.80% of the earnings are spent on dividend by MRK. 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%

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

1. Profitability

1.1 Basic Checks

1.2 Ratios

1.3 Margins

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2. Health

2.1 Basic Checks

2.2 Solvency

2.3 Liquidity

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3. Growth

3.1 Past

3.2 Future

3.3 Evolution

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4. Valuation

4.1 Price/Earnings Ratio

4.2 Price Multiples

4.3 Compensation for Growth

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5. Dividend

5.1 Amount

5.2 History

5.3 Sustainability

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