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

Overall MRK gets a fundamental rating of 7 out of 10. We evaluated MRK against 195 industry peers in the Pharmaceuticals industry. While MRK belongs to the best of the industry regarding profitability, there are some minor concerns on its financial health. MRK may be a bit undervalued, certainly considering the very reasonable score on growth Finally MRK also has an excellent dividend rating. With these ratings, MRK could be worth investigating further for value and dividend investing!.



8

1. Profitability

1.1 Basic Checks

In the past year MRK was profitable.
MRK had a positive operating cash flow in the past year.
Each year in the past 5 years MRK has been profitable.
MRK had a positive operating cash flow in each of the past 5 years.

1.2 Ratios

Looking at the Return On Assets, with a value of 10.34%, MRK belongs to the top of the industry, outperforming 94.09% of the companies in the same industry.
The Return On Equity of MRK (27.30%) is better than 95.16% of its industry peers.
MRK has a Return On Invested Capital of 19.49%. This is amongst the best in the industry. MRK outperforms 95.70% of its industry peers.
The Average Return On Invested Capital over the past 3 years for MRK is significantly below the industry average of 43.99%.
The last Return On Invested Capital (19.49%) for MRK is above the 3 year average (12.63%), which is a sign of increasing profitability.
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

The Profit Margin of MRK (19.23%) is better than 92.47% of its industry peers.
In the last couple of years the Profit Margin of MRK has declined.
MRK's Operating Margin of 34.34% is amongst the best of the industry. MRK outperforms 95.70% of its industry peers.
In the last couple of years the Operating Margin of MRK has declined.
MRK has a Gross Margin of 76.59%. This is amongst the best in the industry. MRK outperforms 82.80% of its industry peers.
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

MRK has a Return on Invested Capital (ROIC), which is well above the Cost of Capital (WACC), which means it is creating value.
Compared to 1 year ago, MRK has less shares outstanding
Compared to 5 years ago, MRK has less shares outstanding
The debt/assets ratio for MRK is higher compared to a year ago.

2.2 Solvency

MRK has an Altman-Z score of 4.05. This indicates that MRK is financially healthy and has little risk of bankruptcy at the moment.
MRK has a better Altman-Z score (4.05) than 77.42% of its industry peers.
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 94.09% of its industry peers.
A Debt/Equity ratio of 0.79 indicates that MRK is somewhat dependend on debt financing.
With a Debt to Equity ratio value of 0.79, MRK is not doing good in the industry: 69.35% of the companies in the same industry are doing better.
Industry RankSector Rank
Debt/Equity 0.79
Debt/FCF 2.57
Altman-Z 4.05
ROIC/WACC1.88
WACC10.35%

2.3 Liquidity

A Current Ratio of 1.36 indicates that MRK should not have too much problems paying its short term obligations.
With a Current ratio value of 1.36, MRK is not doing good in the industry: 77.96% 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 has a worse Quick ratio (1.15) than 75.81% 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

The Earnings Per Share has grown by an impressive 92.56% over the past year.
Measured over the past years, MRK shows a very negative growth in Earnings Per Share. The EPS has been decreasing by -19.14% on average per year.
MRK shows a small growth in Revenue. In the last year, the Revenue has grown by 6.51%.
The Revenue has been growing slightly by 7.29% on average over the past years.
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

MRK is expected to show a strong growth in Earnings Per Share. In the coming years, the EPS will grow by 50.50% yearly.
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 5Y50.5%
Revenue Next Year6.67%
Revenue Next 2Y5.9%
Revenue Next 3Y5.97%
Revenue Next 5Y5.14%

3.3 Evolution

The EPS growth rate is accelerating: in the next years the growth will be better 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.

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9

4. Valuation

4.1 Price/Earnings Ratio

Based on the Price/Earnings ratio of 16.68, the valuation of MRK can be described as correct.
86.02% of the companies in the same industry are more expensive than MRK, based on the Price/Earnings ratio.
When comparing the Price/Earnings ratio of MRK to the average of the S&P500 Index (26.91), we can say MRK is valued slightly cheaper.
The Price/Forward Earnings ratio is 10.36, which indicates a very decent valuation of MRK.
87.10% of the companies in the same industry are more expensive than MRK, based on the Price/Forward Earnings ratio.
Compared to an average S&P500 Price/Forward Earnings ratio of 23.26, MRK is valued rather cheaply.
Industry RankSector Rank
PE 16.68
Fwd PE 10.36

4.2 Price Multiples

83.87% 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 cheaply inside the industry as 86.56% of the companies are valued more expensively.
Industry RankSector Rank
P/FCF 16.92
EV/EBITDA 10.58

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 3.24%. Purely for dividend investing, there may be better candidates out there.
Compared to an average industry Dividend Yield of 4.08, MRK pays a better dividend. On top of this MRK pays more dividend than 93.01% of the companies listed in the same industry.
Compared to an average S&P500 Dividend Yield of 2.34, MRK pays a bit more dividend than the S&P500 average.
Industry RankSector Rank
Dividend Yield 3.24%

5.2 History

The dividend of MRK is nicely growing with an annual growth rate of 8.47%!
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)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.
MRK's earnings are growing more than its dividend. This makes the dividend growth sustainable.
DP63.72%
EPS Next 2Y152.71%
EPS Next 3Y92.36%

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