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 194 industry peers in the Pharmaceuticals industry. MRK has an excellent profitability rating, but there are some minor concerns on its financial health. 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 investing!.



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.
In the past 5 years MRK has always 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 93.75% of the companies in the same industry.
The Return On Equity of MRK (27.30%) is better than 94.79% of its industry peers.
MRK has a better Return On Invested Capital (19.49%) than 95.83% of its industry peers.
The Average Return On Invested Capital over the past 3 years for MRK is significantly below the industry average of 42.22%.
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

Looking at the Profit Margin, with a value of 19.23%, MRK belongs to the top of the industry, outperforming 93.23% of the companies in the same industry.
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 96.35% of its industry peers.
In the last couple of years the Operating Margin of MRK has declined.
With an excellent Gross Margin value of 76.59%, MRK belongs to the best of the industry, outperforming 83.33% of the companies in the same industry.
MRK's Gross Margin has been stable in the last couple of years.
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

With a Return on Invested Capital (ROIC) well above the Cost of Capital (WACC), MRK is creating value.
MRK has less shares outstanding than it did 1 year ago.
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 4.01. This indicates that MRK is financially healthy and has little risk of bankruptcy at the moment.
The Altman-Z score of MRK (4.01) is better than 77.08% of its industry peers.
MRK has a debt to FCF ratio of 2.57. This is a good value and a sign of high solvency as MRK would need 2.57 years to pay back of all of its debts.
MRK's Debt to FCF ratio of 2.57 is amongst the best of the industry. MRK outperforms 94.27% of its industry peers.
A Debt/Equity ratio of 0.79 indicates that MRK is somewhat dependend on debt financing.
The Debt to Equity ratio of MRK (0.79) is worse than 69.27% of its industry peers.
Industry RankSector Rank
Debt/Equity 0.79
Debt/FCF 2.57
Altman-Z 4.01
ROIC/WACC2.31
WACC8.43%

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 Current ratio of 1.36. This is in the lower half of the industry: MRK underperforms 78.13% of its industry peers.
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.
With a Quick ratio value of 1.15, MRK is not doing good in the industry: 77.60% of the companies in the same industry are doing better.
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

MRK is expected to show a strong growth in Earnings Per Share. In the coming years, the EPS will grow by 53.11% yearly.
MRK is expected to show a small growth in Revenue. In the coming years, the Revenue will grow by 5.82% yearly.
EPS Next Y422.29%
EPS Next 2Y151.61%
EPS Next 3Y92.55%
EPS Next 5Y53.11%
Revenue Next Year6.69%
Revenue Next 2Y5.73%
Revenue Next 3Y5.9%
Revenue Next 5Y5.82%

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

The Price/Earnings ratio is 16.38, which indicates a correct valuation of MRK.
85.42% of the companies in the same industry are more expensive than MRK, based on the Price/Earnings ratio.
MRK's Price/Earnings ratio indicates a valuation a bit cheaper than the S&P500 average which is at 28.68.
The Price/Forward Earnings ratio is 10.26, which indicates a very decent valuation of MRK.
Based on the Price/Forward Earnings ratio, MRK is valued cheaply inside the industry as 87.50% of the companies are valued more expensively.
Compared to an average S&P500 Price/Forward Earnings ratio of 23.58, MRK is valued rather cheaply.
Industry RankSector Rank
PE 16.38
Fwd PE 10.26

4.2 Price Multiples

Compared to the rest of the industry, the Enterprise Value to EBITDA ratio of MRK indicates a rather cheap valuation: MRK is cheaper than 84.90% of the companies listed 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 86.46% of the companies listed in the same industry.
Industry RankSector Rank
P/FCF 16.61
EV/EBITDA 10.4

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.
MRK has an outstanding profitability rating, which may justify a higher PE ratio.
MRK's earnings are expected to grow with 92.55% in the coming years. This may justify a more expensive valuation.
PEG (NY)0.04
PEG (5Y)N/A
EPS Next 2Y151.61%
EPS Next 3Y92.55%

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7

5. Dividend

5.1 Amount

MRK has a Yearly Dividend Yield of 3.13%. Purely for dividend investing, there may be better candidates out there.
MRK's Dividend Yield is rather good when compared to the industry average which is at 4.28. MRK pays more dividend than 92.71% of the companies in the same industry.
MRK's Dividend Yield is a higher than the S&P500 average which is at 2.22.
Industry RankSector Rank
Dividend Yield 3.13%

5.2 History

On average, the dividend of MRK grows each year by 8.47%, which is quite nice.
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

63.72% of the earnings are spent on dividend by MRK. 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 2Y151.61%
EPS Next 3Y92.55%

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