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

1.2 Ratios

MRK has a Return On Assets of 10.34%. This is amongst the best in the industry. MRK outperforms 93.75% of its industry peers.
With an excellent Return On Equity value of 27.30%, MRK belongs to the best of the industry, outperforming 94.79% of the companies in the same industry.
The Return On Invested Capital of MRK (19.49%) is better 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

The Profit Margin of MRK (19.23%) is better than 93.23% of its industry peers.
In the last couple of years the Profit Margin of MRK has declined.
The Operating Margin of MRK (34.34%) is better than 96.35% of its industry peers.
MRK's Operating Margin has declined in the last couple of years.
Looking at the Gross Margin, with a value of 76.59%, MRK belongs to the top of the industry, outperforming 83.33% 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%

More info and screens

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.
Compared to 1 year ago, MRK has less shares outstanding
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

MRK has an Altman-Z score of 4.06. This indicates that MRK is financially healthy and has little risk of bankruptcy at the moment.
MRK's Altman-Z score of 4.06 is fine compared to the rest of the industry. MRK outperforms 77.60% 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.
Looking at the Debt to FCF ratio, with a value of 2.57, MRK belongs to the top of the industry, outperforming 94.27% of the companies in the same industry.
A Debt/Equity ratio of 0.79 indicates that MRK is somewhat dependend on debt financing.
MRK's Debt to Equity ratio of 0.79 is on the low side compared to the rest of the industry. MRK is outperformed by 69.79% of its industry peers.
Industry RankSector Rank
Debt/Equity 0.79
Debt/FCF 2.57
Altman-Z 4.06
ROIC/WACC2.31
WACC8.43%

2.3 Liquidity

A Current Ratio of 1.36 indicates that MRK should not have too much problems paying its short term obligations.
The Current ratio of MRK (1.36) is worse than 78.65% 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.
MRK's Quick ratio of 1.15 is on the low side compared to the rest of the industry. MRK is outperformed by 78.13% of its industry peers.
Industry RankSector Rank
Current Ratio 1.36
Quick Ratio 1.15

More info and screens

5

3. Growth

3.1 Past

The Earnings Per Share has grown by an impressive 92.56% over the past year.
The earnings per share for MRK have been decreasing by -19.14% on average. This is quite bad
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

Based on estimates for the next years, MRK will show a very strong growth in Earnings Per Share. The EPS will grow by 53.11% on average per year.
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.
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.

More info and screens

9

4. Valuation

4.1 Price/Earnings Ratio

With a Price/Earnings ratio of 16.78, MRK is valued correctly.
Based on the Price/Earnings ratio, MRK is valued cheaply inside the industry as 84.90% of the companies are valued more expensively.
The average S&P500 Price/Earnings ratio is at 28.96. MRK is valued slightly cheaper when compared to this.
With a Price/Forward Earnings ratio of 10.52, the valuation of MRK can be described as very reasonable.
Based on the Price/Forward Earnings ratio, MRK is valued cheaper than 86.46% of the companies in the same industry.
Compared to an average S&P500 Price/Forward Earnings ratio of 23.82, MRK is valued rather cheaply.
Industry RankSector Rank
PE 16.78
Fwd PE 10.52

4.2 Price Multiples

MRK's Enterprise Value to EBITDA ratio is rather cheap when compared to the industry. MRK is cheaper than 84.90% of the companies in the same industry.
Based on the Price/Free Cash Flow ratio, MRK is valued cheaply inside the industry as 86.46% of the companies are valued more expensively.
Industry RankSector Rank
P/FCF 17.02
EV/EBITDA 10.64

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.
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%

More info and screens

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.
Compared to an average industry Dividend Yield of 4.28, MRK pays a better dividend. On top of this MRK pays more dividend than 92.71% of the companies listed in the same industry.
Compared to an average S&P500 Dividend Yield of 2.23, MRK pays a bit more dividend than the S&P500 average.
Industry RankSector Rank
Dividend Yield 3.13%

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 2Y151.61%
EPS Next 3Y92.55%

More info and screens