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 198 industry peers in the Pharmaceuticals industry. MRK scores excellent points on both the profitability and health parts. This is a solid base for a good stock. 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!


Dividend Valuation Growth Profitability Health

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.
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

With an excellent Return On Assets value of 14.62%, MRK belongs to the best of the industry, outperforming 96.97% of the companies in the same industry.
MRK's Return On Equity of 36.96% is amongst the best of the industry. MRK outperforms 96.97% of its industry peers.
With an excellent Return On Invested Capital value of 19.77%, MRK belongs to the best of the industry, outperforming 94.44% of the companies in the same industry.
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

With an excellent Profit Margin value of 26.68%, MRK belongs to the best 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.
Looking at the Operating Margin, with a value of 34.59%, MRK belongs to the top of the industry, outperforming 95.96% of the companies in the same industry.
In the last couple of years the Operating Margin of MRK has grown nicely.
MRK has a better Gross Margin (78.19%) 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

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 about the same amount of shares outstanding.
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

An Altman-Z score of 3.70 indicates that MRK is not in any danger for bankruptcy at the moment.
Looking at the Altman-Z score, with a value of 3.70, MRK is in the better half of the industry, outperforming 79.29% 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.
A Debt/Equity ratio of 0.74 indicates that 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 67.17% 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 RankSector Rank
Debt/Equity 0.74
Debt/FCF 2.05
Altman-Z 3.7
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

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.
The Current ratio of MRK (1.36) is worse than 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.
MRK has a Quick ratio of 1.15. This is in the lower half of the industry: MRK underperforms 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 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

MRK shows a strong growth in Earnings Per Share. In the last year, the EPS has been growing by 409.33%, which is quite impressive.
The Earnings Per Share has been growing by 8.04% on average over the past years. This is quite good.
The Revenue has been growing slightly by 6.74% in the past year.
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.
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.
The Revenue growth rate is decreasing: in the next years the growth will be less than in the last years.
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

Based on the Price/Earnings ratio of 10.19, the valuation of MRK can be described as reasonable.
MRK's Price/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/Earnings ratio is at 27.63. MRK is valued rather cheaply when compared to this.
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 cheaper than 89.90% 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 10.19
Fwd PE 8.59
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

MRK's Enterprise Value to EBITDA ratio is rather cheap when compared to the industry. MRK is cheaper than 86.36% of the companies in the same industry.
Based on the Price/Free Cash Flow ratio, MRK is valued cheaply inside the industry as 89.90% of the companies are valued more expensively.
Industry RankSector Rank
P/FCF 10.83
EV/EBITDA 8.21
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

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 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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8

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 RankSector Rank
Dividend Yield 4.15%

5.2 History

On average, the dividend of MRK grows each year by 6.90%, 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 its dividend for at least 10 years, so it has a reliable track record of non decreasing dividend.
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.
MRK's earnings are growing slower than its dividend. 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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