Merck & Co., Inc. ($MRK) Cautious Buy or Hold to $65 Confident Investor Rating: Fair

Company name Merck & Co., Inc.
Stock ticker MRK
Live stock price [stckqut]MRK[/stckqut]
P/E compared to competitors Fair


Employee productivity Fair
Sales growth Poor
EPS growth Good
P/E growth Good
EBIT growth Good


Confident Investor Rating Fair
Target stock price (TWCA growth scenario) $75.01
Target stock price (averages with growth) $82.91
Target stock price (averages with no growth) $68.25
Target stock price (manual assumptions) $51.27

The following company description is from Google Finance:

Merck & Co., Inc. (Merck) is a global health care company that delivers health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products, which it markets directly and through its joint ventures. The Company consists of four operating segments, which are the Pharmaceutical, Animal Health, Consumer Care and Alliances segments, and one reportable segment, which is the Pharmaceutical segment. The Pharmaceutical segment includes human health pharmaceutical and vaccine products marketed either directly by the Company or through joint ventures. Human health pharmaceutical products consist of therapeutic and preventive agents, generally sold by prescription, for the treatment of human disorders. Effective February 25, 2013, Dashtag, a unit of Merck & Co Inc’s Schering Plough Corp subsidiary acquired 17.95% interest in Fulford (India) Ltd.


Confident Investor comments: At this time, I think that a Confident Investor can cautiously invest in this stock as long as the price is correct. Most of the fundamentals of this company are good but there are some concerns. I am leaving the company on my Watch List in the hopes that the metrics will improve a little bit.

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  1. Over the last five years Merck’s stock price has returned 65.93% compared to the S&P 500 Index which has returned 95.55%, beginning in 2008. The S&P Pharmaceutical index has had a return of 210% over the same period, outperforming both Merck as well as the S&P 500.

  2. Merck is trading at a forward one year price-to-earnings multiple of 13.1 times, which puts the price at a 12.5% discount to the S&P 500 index and a 3.7% discount to Pfizer, the largest drug maker in the US. With patent expiries of blockbuster drugs, it is difficult for Merck to trade at better valuation multiples.

  3. Author

    Adam / Robert –

    I believe that your analysis is correct. However, since the Schering-Plough acquisition, the company has done very well at managing revenue and cost. I believe Merck is very well run and will continue to perform well. Also, I think their cash compares favorably to other pharmas. With their successful integration with S-P and their strong balance sheet, I believe they will effectively maintain a growth strategy even if that strategy includes M&A efforts.

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