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

MRK gets a fundamental rating of 7 out of 10. The analysis compared the fundamentals against 193 industry peers in the Pharmaceuticals industry. While MRK has a great profitability rating, there are some minor concerns on its financial health. A decent growth rate in combination with a cheap valuation! Better keep an eye on MRK. MRK also has an excellent dividend rating. These ratings would make MRK suitable for value and dividend investing!



8

1. Profitability

1.1 Basic Checks

MRK had positive earnings in the past year.
In the past year MRK had a positive cash flow from operations.
Each year in the past 5 years MRK has been profitable.
In the past 5 years MRK always reported a positive cash flow from operatings.

1.2 Ratios

The Return On Assets of MRK (10.34%) is better than 93.72% of its industry peers.
Looking at the Return On Equity, with a value of 27.30%, MRK belongs to the top of the industry, outperforming 94.76% of the companies in the same industry.
Looking at the Return On Invested Capital, with a value of 19.49%, MRK belongs to the top of the industry, outperforming 95.81% of the companies in the same industry.
Measured over the past 3 years, the Average Return On Invested Capital for MRK is significantly below the industry average of 43.18%.
The 3 year average ROIC (12.63%) for MRK is below the current ROIC(19.49%), indicating increased profibility in the last year.
Industry RankSector Rank
ROA 10.34%
ROE 27.3%
ROIC 19.49%
ROA(3y)8.66%
ROA(5y)9.07%
ROE(3y)22.24%
ROE(5y)26.52%
ROIC(3y)12.63%
ROIC(5y)12.83%

1.3 Margins

MRK has a Profit Margin of 19.23%. This is amongst the best in the industry. MRK outperforms 92.67% of its industry peers.
MRK's Profit Margin has declined in the last couple of years.
With an excellent Operating Margin value of 34.34%, MRK belongs to the best of the industry, outperforming 95.81% of the companies in the same industry.
In the last couple of years the Operating Margin of MRK has declined.
Looking at the Gross Margin, with a value of 76.59%, MRK belongs to the top of the industry, outperforming 83.25% of the companies in the same industry.
In the last couple of years the Gross Margin of MRK has remained more or less at the same level.
Industry RankSector Rank
OM 34.34%
PM (TTM) 19.23%
GM 76.59%
OM growth 3Y-36.42%
OM growth 5Y-24.03%
PM growth 3Y-67.08%
PM growth 5Y-47.14%
GM growth 3Y0.65%
GM growth 5Y1.25%

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6

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.
The number of shares outstanding for MRK has been reduced compared to 1 year ago.
MRK has less shares outstanding than it did 5 years ago.
The debt/assets ratio for MRK is higher compared to a year ago.

2.2 Solvency

An Altman-Z score of 4.03 indicates that MRK is not in any danger for bankruptcy at the moment.
With a decent Altman-Z score value of 4.03, MRK is doing good in the industry, outperforming 77.49% of the companies in the same industry.
The Debt to FCF ratio of MRK is 2.57, which is a good value as it means it would take MRK, 2.57 years of fcf income to pay off all of its debts.
MRK's Debt to FCF ratio of 2.57 is amongst the best of the industry. MRK outperforms 93.72% of its industry peers.
A Debt/Equity ratio of 0.79 indicates that MRK is somewhat dependend on debt financing.
Looking at the Debt to Equity ratio, with a value of 0.79, MRK is doing worse than 69.11% of the companies in the same industry.
Industry RankSector Rank
Debt/Equity 0.79
Debt/FCF 2.57
Altman-Z 4.03
ROIC/WACC2.11
WACC9.25%

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.
MRK has a worse Current ratio (1.36) than 77.49% of its industry peers.
A Quick Ratio of 1.15 indicates that MRK should not have too much problems paying its short term obligations.
MRK has a worse Quick ratio (1.15) than 75.39% of its industry peers.
Industry RankSector Rank
Current Ratio 1.36
Quick Ratio 1.15

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5

3. Growth

3.1 Past

MRK shows a strong growth in Earnings Per Share. In the last year, the EPS has been growing by 92.56%, which is quite impressive.
MRK shows a very negative growth in Earnings Per Share. Measured over the last years, the EPS has been decreasing by -19.14% yearly.
Looking at the last year, MRK shows a small growth in Revenue. The Revenue has grown by 6.51% in the last year.
Measured over the past years, MRK shows a small growth in Revenue. The Revenue has been growing by 7.29% on average per year.
EPS 1Y (TTM)92.56%
EPS 3Y-36.76%
EPS 5Y-19.14%
EPS Q2Q%-26.29%
Revenue 1Y (TTM)6.51%
Revenue growth 3Y13.13%
Revenue growth 5Y7.29%
Sales Q2Q%4.35%

3.2 Future

Based on estimates for the next years, MRK will show a very strong growth in Earnings Per Share. The EPS will grow by 50.47% on average per year.
MRK is expected to show a small growth in Revenue. In the coming years, the Revenue will grow by 5.14% yearly.
EPS Next Y422.19%
EPS Next 2Y152.71%
EPS Next 3Y92.36%
EPS Next 5Y50.47%
Revenue Next Year6.66%
Revenue Next 2Y5.81%
Revenue Next 3Y5.91%
Revenue Next 5Y5.14%

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

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9

4. Valuation

4.1 Price/Earnings Ratio

Based on the Price/Earnings ratio of 16.48, the valuation of MRK can be described as correct.
84.82% of the companies in the same industry are more expensive than MRK, based on the Price/Earnings ratio.
Compared to an average S&P500 Price/Earnings ratio of 27.73, MRK is valued a bit cheaper.
The Price/Forward Earnings ratio is 10.24, which indicates a very decent valuation of MRK.
Based on the Price/Forward Earnings ratio, MRK is valued cheaper than 88.48% of the companies in the same industry.
Compared to an average S&P500 Price/Forward Earnings ratio of 22.83, MRK is valued rather cheaply.
Industry RankSector Rank
PE 16.48
Fwd PE 10.24

4.2 Price Multiples

MRK's Enterprise Value to EBITDA ratio is rather cheap when compared to the industry. MRK is cheaper than 84.29% of the companies in the same industry.
Compared to the rest of the industry, the Price/Free Cash Flow ratio of MRK indicates a rather cheap valuation: MRK is cheaper than 85.86% of the companies listed in the same industry.
Industry RankSector Rank
P/FCF 16.71
EV/EBITDA 10.46

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.
MRK has an outstanding profitability rating, which may justify a higher PE ratio.
A more expensive valuation may be justified as MRK's earnings are expected to grow with 92.36% in the coming years.
PEG (NY)0.04
PEG (5Y)N/A
EPS Next 2Y152.71%
EPS Next 3Y92.36%

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7

5. Dividend

5.1 Amount

MRK has a Yearly Dividend Yield of 3.26%.
Compared to an average industry Dividend Yield of 4.42, MRK pays a better dividend. On top of this MRK pays more dividend than 92.67% of the companies listed in the same industry.
MRK's Dividend Yield is a higher than the S&P500 average which is at 2.34.
Industry RankSector Rank
Dividend Yield 3.26%

5.2 History

On average, the dividend of MRK grows each year by 8.47%, which is quite nice.
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)8.47%
Div Incr Years13
Div Non Decr Years33

5.3 Sustainability

MRK pays out 63.72% of its income as dividend. This is not a sustainable payout ratio.
The dividend of MRK is growing, but earnings are growing more, so the dividend growth is sustainable.
DP63.72%
EPS Next 2Y152.71%
EPS Next 3Y92.36%

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