Company Description: Merck & Co., Inc. operates as a healthcare company worldwide. It operates through two segments, Pharmaceutical and Animal Health.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
MRK is trading at a premium to all four valuations above. Since MRK's tangible book value is not meaningful, a Graham number can not be calculated. When also considering the NPV MMA Differential, the stock is trading at a 151.0% premium to its calculated fair value of $57.87. MRK did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
MRK earned no Stars in this section. The company has paid a cash dividend to shareholders every year since 1928 and has increased its dividend payments for 16 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The negative NPV MMA Diff. means that on a NPV basis the dividend earnings from an investment in MRK would be less than a similar amount invested in MMA earning a 20-year average rate of 3.75%. If MRK grows its dividend at 4.9% per year, it will never equal a MMA yielding an estimated 20-year average rate of 3.75%.
Peers: The company’s peer group includes: The company's peer group includes: Abbvie Inc. (ABBV) with a 2.4% yield, Bristol-Myers Squibb Company (BMY) with a 4.1% yield, and Eli Lilly & Co. (LLY) with a 0.5% yield.
Conclusion: MRK did not earn any Stars in the Fair Value section, did not earn any Stars in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of zero Star. This quantitatively ranks MRK as a 0-Star Avoid stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $63.27 before MRK's NPV MMA Differential increased to the $1,900 minimum that I look for in a stock with 16 years of consecutive dividend increases. At that price the stock would yield 5.4%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 12.8%. This dividend growth rate higher than the 4.9% used in this analysis, thus providing no margin of safety. CINF has a risk rating of 2.0 which classifies it as a Medium risk stock.
Merck & Co., Inc. is an American multinational pharmaceutical company headquartered in Rahway, New Jersey. The company does business as Merck Sharp & Dohme or MSD outside the United States and Canada. The company is ranked fifth on the list of largest biomedical companies by revenue.
The company enjoys a reasonable debt to total capital of 55% and currently has a FCF Payout of 52%. The stock is trading at a premium to my calculated fair value of $57.87. This stock is currently rated as "Avoid" so I will continue to wait for a better entry point.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I held no position in MRK (0.0% of my Dividend Growth Portfolio).
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Tags: MRK, ABBV, BMY, LLY,
