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

We assign a fundamental rating of 7 out of 10 to MRK. MRK was compared to 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 is valued quite cheap, while showing a decent growth score. This is a good combination! Finally MRK also has an excellent dividend rating. These ratings would make MRK suitable 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.
MRK had a positive operating cash flow in the past year.
MRK had positive earnings in each of the past 5 years.
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

MRK has a better Return On Assets (14.62%) than 96.46% of its industry peers.
MRK has a better Return On Equity (36.96%) than 96.46% of its industry peers.
MRK has a better Return On Invested Capital (19.77%) than 93.94% of its industry peers.
The Average Return On Invested Capital over the past 3 years for MRK is significantly below the industry average of 41.67%.
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

MRK has a better Profit Margin (26.68%) than 95.96% of its industry peers.
MRK's Profit Margin has been stable in the last couple of years.
MRK has a better Operating Margin (34.59%) than 95.45% of its industry peers.
In the last couple of years the Operating Margin of MRK has grown nicely.
Looking at the Gross Margin, with a value of 78.19%, MRK belongs to the top of the industry, outperforming 84.85% of the companies in the same industry.
MRK's Gross Margin has improved in the last couple of years.
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

7

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 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

MRK has an Altman-Z score of 3.81. This indicates that MRK is financially healthy and has little risk of bankruptcy at the moment.
The Altman-Z score of MRK (3.81) is better than 79.80% of its industry peers.
The Debt to FCF ratio of MRK is 2.05, which is a good value as it means it would take MRK, 2.05 years of fcf income to pay off all of its debts.
MRK has a Debt to FCF ratio of 2.05. This is amongst the best in the industry. MRK outperforms 92.93% 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.
Even though the debt/equity ratio score it not favorable for MRK, it has very limited outstanding debt, so we won't put too much weight on the DE evaluation.
Industry RankSector Rank
Debt/Equity 0.74
Debt/FCF 2.05
Altman-Z 3.81
ROIC/WACC2.14
WACC9.25%
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.
MRK has a worse Current ratio (1.36) than 76.26% 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 has a Quick ratio of 1.15. This is in the lower half of the industry: MRK underperforms 72.73% 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

5

3. Growth

3.1 Past

The Earnings Per Share has grown by an impressive 258.99% over the past year.
MRK shows quite a strong growth in Earnings Per Share. Measured over the last years, the EPS has been growing by 8.04% yearly.
MRK shows a small growth in Revenue. In the last year, the Revenue has grown by 4.10%.
MRK shows quite a strong growth in Revenue. Measured over the last years, the Revenue has been growing by 10.40% yearly.
EPS 1Y (TTM)258.99%
EPS 3Y6.87%
EPS 5Y8.04%
EPS Q2Q%7.25%
Revenue 1Y (TTM)4.1%
Revenue growth 3Y9.63%
Revenue growth 5Y10.4%
Sales Q2Q%-1.56%

3.2 Future

Based on estimates for the next years, MRK will show a small growth in Earnings Per Share. The EPS will grow by 6.16% on average per year.
The Revenue is expected to grow by 2.43% on average over the next years.
EPS Next Y18.6%
EPS Next 2Y14.32%
EPS Next 3Y13.3%
EPS Next 5Y6.16%
Revenue Next Year1.56%
Revenue Next 2Y3.93%
Revenue Next 3Y4.56%
Revenue Next 5Y2.43%

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 decreasing.
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.
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

9

4. Valuation

4.1 Price/Earnings Ratio

With a Price/Earnings ratio of 10.68, the valuation of MRK can be described as very reasonable.
89.90% of the companies in the same industry are more expensive than MRK, based on the Price/Earnings ratio.
The average S&P500 Price/Earnings ratio is at 28.22. MRK is valued rather cheaply when compared to this.
A Price/Forward Earnings ratio of 8.33 indicates a reasonable valuation of MRK.
90.40% of the companies in the same industry are more expensive than MRK, based on the Price/Forward Earnings ratio.
When comparing the Price/Forward Earnings ratio of MRK to the average of the S&P500 Index (20.86), we can say MRK is valued rather cheaply.
Industry RankSector Rank
PE 10.68
Fwd PE 8.33
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 85.86% of the companies in the same industry.
MRK's Price/Free Cash Flow ratio is rather cheap when compared to the industry. MRK is cheaper than 88.89% of the companies in the same industry.
Industry RankSector Rank
P/FCF 11.57
EV/EBITDA 8.71
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

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 13.30% in the coming years.
PEG (NY)0.57
PEG (5Y)1.33
EPS Next 2Y14.32%
EPS Next 3Y13.3%

7

5. Dividend

5.1 Amount

With a Yearly Dividend Yield of 3.89%, MRK has a reasonable but not impressive dividend return.
Compared to an average industry Dividend Yield of 4.25, MRK pays a better dividend. On top of this MRK pays more dividend than 94.95% of the companies listed in the same industry.
MRK's Dividend Yield is rather good when compared to the S&P500 average which is at 2.44.
Industry RankSector Rank
Dividend Yield 3.89%

5.2 History

The dividend of MRK is nicely growing with an annual growth rate of 6.90%!
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

45.80% of the earnings are spent on dividend by MRK. This is a bit on the high side, but may be sustainable.
The dividend of MRK is growing, but the earnings are growing slower. 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