MRK  Merck & Company Inc.

Exchange

NYSE

Sector

Consumer Durables

Industry

Major Pharmaceuticals

Market Cap.

177.57B

Vuru Grade

49.91/100

Current Price

$64.92
-0.12 (-0.18%)

Growth Price

$43.82
Overvalued by 32.50%

Stability Price

$13.65
Overvalued by 78.97%

Company Metrics

  • P/E 41.38
  • P/S 4.46
  • P/B 4.47
  • EPS 1.57
  • Cash ROIC 12.83%
  • Cash Ratio 0.83
  • Dividend 1.88 / 2.90 %
  • Avg. Vol. 8.91M
  • Shares 2.74B
  • Market Cap. 177.57B

Company Description

Merck & Co., Inc. provides various health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products. The company's Pharmaceutical segment provides human health pharmaceutical products, such as therapeutic and preventive agents for the treatment of human disorders in the areas of bone, respiratory, immunology, dermatology, cardiovascular, ... more


Download 10 Years of Financial Statements:
Income Statement   Balance Sheet   Cash Flow

News

Congo clears Merck's Ebola vaccine
Seeking Alpha - 3 hours ago
Democratic Republic of Congo's health ministry has approved the use of a new Ebola vaccine to counter an outbreak of the hemorrhagic fever in its northeast that has killed four people.
Why Merck & Co. Is A Buy
Seeking Alpha - May 4, 2017
I believe that the dividend streams of Merck & Co. (NYSE:MRK) are undervalued and that this could translate to a 15% upside under the right circumstances.
Merck & Company Inc. (new) (MRK) Closes 0.39% Down on the Day for May 04 - Equities.com
Merck & Co Inc. Bottom Line Drops 2% In Q1
Nasdaq - May 2, 2017
(RTTNews.com) - Merck & Co Inc. ( MRK ) revealed a profit for first quarter that retreated compared to the same period last year.
Merck Cements Its Lung Cancer Lead
Seeking Alpha - May 12, 2017
Immuno-oncology is Merck & Co's (NYSE:MRK) world - everyone else just lives in it. US approval of Keytruda in first-line non-small cell lung cancer in combination with chemotherapy for now makes this the PD-1 to beat, especially given setbacks to ...
US FDA approves Merck immunotherapy/chemo combo for lung cancer - Reuters
AstraZeneca, Merck and Bristol-Myers vying for dominance in lung cancer market - Proactive Investors UK
FDA OKs Merck's Keytruda for certain solid tumors
Seeking Alpha - May 23, 2017
Merck (MRK +0.8%) is on a regulatory roll with cancer med KEYTRUDA (pembrolizumab). In its second approval in a week, the FDA OKs the use of the PD-1 inhibitor to treat adult and pediatric patients with unresectable or metastatic solid tumors that are ...
FDA Approves Merck's KEYTRUDA® (pembrolizumab) for Adult and Pediatric ... - Business Wire (press release)
Merck & Co., Inc. (MRK) Shares Sold by Eastern Bank
The Cerbat Gem - 34 minutes ago
Merck & Co. logo Eastern Bank lowered its position in Merck & Co., Inc. (NYSE:MRK) by 7.2% during the first quarter, according to its most recent disclosure with the Securities and Exchange Commission.
Which insiders are selling Merck & Co., Inc. (NYSE:MRK)? - Post Analyst
Jefferies Group Comments on Merck & Co., Inc.'s FY2019 Earnings (MRK) - Chaffey Breeze
Merck eyes key cancer drug growth as others lose patent protection
Reuters - May 2, 2017
Merck & Co Inc (MRK.N) on Tuesday reported better-than-expected profit in the first quarter as surprisingly strong demand for animal health products, vaccines and its hepatitis C treatment offset nearly $700 million in lower sales from drugs that lost ...
Analytical Approach on Price Target Estimates: Merck & Co., Inc. (NYSE:MRK) - ExpertGazette
Why Investors remained confident on Merck & Co., Inc. (MRK), Verizon ... - StockNewsJournal
Keytruda Gets Hot And Propels Merck: Analysis
Seeking Alpha - May 11, 2017
The venerable Merck (NYSE:MRK) has turned into a hot mega-cap stock again, at least hot for a non-Internet stock, on the back of its immuno-oncology drug Keytruda.
Merck & Co., Inc. (MRK) Position Held by Lawson Kroeker Investment Management ... - The Cerbat Gem
Pfizer Inc Shares Rise After Earnings, Merck & Co., Inc. Shares Decline
ValueWalk - May 2, 2017
Merck's GAAP earnings per share rose to 56 cents from 40 cents per share in last year's first quarter. Pharmaceutical revenue rose 1% to $8.2 billion, which includes a negative impact of 1% from currency headwinds.
Merck, Upsher-Smith to pay $60 million in 'pay-for-delay' drug case
Reuters - May 16, 2017
Merck & Co Inc and Upsher-Smith Laboratories Inc have agreed to pay $60.2 million to resolve a lawsuit that said they entered into a deal to unlawfully delay the availability of generic versions of potassium supplement K-Dur.
Merck Seeks OK For $60M Settlement In Pay-For-Delay Row - Law360 (subscription)
Growth Rate Assumed by Market

We did a reverse valuation to calculate the growth rate the market is assuming for MRK to be considered fairly valued at its current market price. It's useful to compare this to the growth rate we're assuming for the Growth Price.

Future Free Cash Flow Growth Rate

This is the annual growth rate we've applied to calculate MRK's Free Cash Flow for the next 10 years. To calculate it, we looked at several time periods of the last 10 years. Feel free to adjust it, but we limit the initial growth rate to 20% and slow it down over the years. Otherwise, long-term sustainability issues come into play.

Discount Rate

The discount rate is the annual rate of return an investor requires to take the risk of investing in a single stock. To account for that risk, this should be above 8-10%, as this is the avg. annual rate of return for the S&P500 over the past 100 years.

$64.92 Current Price

$43.82 Growth Price (DCF)

Overvalued by 32.50%


Growth Rate Assumed by Market: 21.85%


Future Free Cash Flow Growth Rate: 8.7%


Discount Rate: 15.0%


Show Free Cash Flow numbers

$13.65 Stability Price (EPV)

Overvalued by 78.97%


Discount Rate: 15.0%

$41.38 Book Price

Overvalued by 36.25%


Satisfactory Cash Return on Invested Capital over the past 5 years

MRK has somewhat efficiently invested its financial resources in buildings, projects, and equipment. If CROIC is inconsistent, it's likely MRK could be benefiting from a one-time event or has a mixed history of investing capital productively. Read the company's Annual Report to determine whether this can improve.

MRK has created $12.83 of cash for every $100 invested.
Figures in USD. Fiscal year ends in December
20122013201420152016
Free Cash Flow 8.07B 10.11B 5.54B 11.14B 8.76B
divided by
Invested Capital 71.64B 70.29B 63.85B 69.15B 63.83B
Cash ROIC 11.26% 14.38% 8.68% 16.11% 13.73%

Inconsistent Return on Equity over the past 5 years

MRK has generated adequate returns with capital that shareholders have invested. However, there has been some inconsistency from year-to-year. Look at reasons for this inconsistency to determine the likelihood of future sustainability.

MRK has generated $13.06 of Earnings for every $100 of Shareholders' Equity.
Figures in USD. Fiscal year ends in December
20122013201420152016
Net Income 6.30B 4.52B 11.93B 4.46B 3.94B
divided by
Stockholders' Equity 53.02B 49.77B 48.65B 44.68B 40.09B
Return on Equity 11.88% 9.08% 24.53% 9.98% 9.83%

Excellent Business Performance over the past 10 years

MRK has been able to maintain profitability in good times and bad. This could mean MRK has an extremely strong business or has the ability to scale down costs when needed. This should be a fairly resilient business, but double check for future sustainability by looking at its Risk Factors in the Annual Report.

MRK has created positive free cash flow for 9 or more of the past 10 years.
Figures in USD. Fiscal year ends in December
2007200820092010201120122013201420152016
Free Cash Flow 5.99B 5.27B 1.93B 9.14B 10.66B 8.07B 10.11B 5.54B 11.14B 8.76B

Weak Balance Sheet

MRK's financial position is not ideal. The key is to check whether MRK is using debt to fuel its growth and the sustainability of that tendency. Highly capital intensive businesses (see Economic Moat) follow this route, which can deeply impact the future prospects of the business.
Figures in USD. Fiscal year ends in December
2007200820092010201120122013201420152016
Cash 8.23B 5.49B 9.60B 12.20B 14.97B 16.14B 17.49B 15.72B 13.43B 14.34B
Current Assets 15.05B 19.30B 28.43B 29.06B 33.18B 34.86B 35.69B 33.17B 29.76B 30.61B
Total Assets 48.35B 47.20B 112.09B 105.78B 105.13B 106.13B 105.65B 98.34B 101.78B 95.38B
Current Liabilities 12.26B 14.32B 15.75B 15.64B 16.25B 18.35B 17.87B 18.77B 19.20B 17.20B
Total Liabilities 30.17B 28.44B 53.03B 51.41B 50.61B 53.11B 55.88B 49.69B 57.10B 55.29B
Stockholder' Equity 18.18B 18.76B 59.06B 54.38B 54.52B 53.02B 49.77B 48.65B 44.68B 40.09B
Current Ratio 1.23 1.35 1.80 1.86 2.04 1.90 2.00 1.77 1.55 1.78
TL-to-TA 0.62 0.60 0.47 0.49 0.48 0.50 0.53 0.51 0.56 0.58

Low or No Reinvestment of Profits over the past 10 years

MRK has either been retaining a small amount of their earnings or has done so inconsistently. A lack of consistency could be due to MRK operating at a loss or them having such a strong economic moat they feel comfortable spending profits on growth. Be wary of future prospects and if applicable, inspect the moat's sustainability.
Figures in USD. Fiscal year ends in December
2007200820092010201120122013201420152016
Retained Earnings 39.14B 43.70B 41.40B 37.54B 38.99B 39.99B 39.26B 46.02B 45.35B 44.13B
Retained Earnings Growth - 11.65% -5.25% -9.34% 3.87% 2.55% -1.82% 17.23% -1.46% -2.68%

Inconsistent Net Profit Margins over the past 10 years

MRK potentially has a competitive advantage, however inconsistent profit margins are a cause for concern. Look at reasons for this inconsistency to determine the likelihood of future sustainability.

$18.13 of every $100 of Revenue have been pure profit, on average over the past 10 years.
Figures in USD. Fiscal year ends in December
2007200820092010201120122013201420152016
Net Income 3.28B 7.81B 12.90B 861.00M 6.27B 6.30B 4.52B 11.93B 4.46B 3.94B
divided by
Revenue 24.20B 23.85B 27.43B 45.99B 48.05B 47.27B 44.03B 42.24B 39.50B 39.81B
Net Profit Margin 13.54% 32.74% 47.04% 1.87% 13.05% 13.33% 10.26% 28.25% 11.29% 9.90%

Strong Pricing Power over the past 10 years

MRK has maintained substantial gross margins, suggesting that they have been able to set prices without consideration of the cost of goods sold. This potentially leaves flexibility in inflationary environments to raise prices on consumers and maintain profitability.

$67.50 of every $100 worth of sales have been Gross Profit, on average over the past 10 years.
Figures in USD. Fiscal year ends in December
2007200820092010201120122013201420152016
Gross Profit 18.06B 18.27B 18.41B 27.59B 39.58B 30.82B 27.08B 25.47B 24.56B 25.92B
divided by
Revenue 24.20B 23.85B 27.43B 45.99B 48.05B 47.27B 44.03B 42.24B 39.50B 39.81B
Gross Margin 74.62% 76.59% 67.12% 60.00% 82.38% 65.21% 61.50% 60.30% 62.19% 65.10%

Medium Capital Intensity over the past 10 years

MRK has used a reasonable amount of their financial resources to invest in facilities and equipment required to produce its goods and services. This isn't perfect, but it shouldn't be an area of concern unless this number is strongly trending upwards.

43.56% of Profits are being spent on Capital Expenditures, like Property, Plant, & Equipment, required to run the business.
Figures in USD. Fiscal year ends in December
2007200820092010201120122013201420152016
Capital Expenditure 1.01B 1.30B 1.46B 1.68B 1.72B 1.95B 1.55B 2.32B 1.28B 1.61B
divided by
Net Income 3.28B 7.81B 12.90B 861.00M 6.27B 6.30B 4.52B 11.93B 4.46B 3.94B
Capital Expenditure Ratio 30.87% 16.63% 11.32% 194.89% 27.47% 31.02% 34.27% 19.42% 28.77% 40.95%

Very Strong Dividend History over the past 10 years

MRK has consistently distributed a dividend for at least the past 10 years. Such a long dividend history suggests MRK is very established in its market and that its dividend distribution is likely to continue for a significant period of time.
Figures in USD. Fiscal year ends in December
2007200820092010201120122013201420152016
Dividend Paid 3.31B 3.28B 3.48B 4.85B 4.81B 5.24B 5.28B 5.25B 5.12B 5.12B
divided by
Shares Outstanding 2.19B 2.15B 2.27B 3.12B 3.09B 3.08B 3.00B 2.93B 2.84B 2.79B
Dividend Paid Per Share 1.51 1.53 1.53 1.56 1.55 1.70 1.76 1.79 1.80 1.84
Price at Year End 48.77 25.70 33.91 34.38 37.70 40.64 49.94 57.65 53.25 58.87
Dividend Yield 3.09% 5.95% 4.51% 4.52% 4.12% 4.19% 3.53% 3.11% 3.38% 3.12%

Strong History of Stock Buybacks over the past 10 years

MRK has a strong history of delivering increased value for shareholders in the form of stock buybacks. These have helped improve financial metrics and increase each shareholders' relative ownership stake in the company, due to fewer shares outstanding and holding the same number of shares.
Figures in USD. Fiscal year ends in December
2007200820092010201120122013201420152016
Shares Outstanding 2.19B 2.15B 2.27B 3.12B 3.09B 3.08B 3.00B 2.93B 2.84B 2.79B
Stock Bought Back - 2.22% -5.63% -27.14% 0.84% 0.59% 2.67% 2.32% 3.06% 1.94%
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Discussion
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Posted by johnh  (on April 2, 2012)
Really inconsistent growth in FCF. The biggest concern on MRK's horizon is Singulair. It's one of their biggest selling drugs ($5.5 billion in sales in the past year) and the patent will expire in Q4 2012.