Merck Stock: Strong Moat, Fairly Valued

I am bullish on Merck & Company (MRK) as it has a very strong moat and Wall Street analysts are generally bullish on it, while its price target and valuation multiples imply that it is discounted to fair value at the moment.

Merck & Company is a pharmaceutical company headquartered in New Jersey. Named after the Merck family, which was involved in the formation of Germany’s Merck Group in 1668, Merck & Company is one of the largest pharmaceuticals in the world. 

The company has become a worldwide leader in this industry. It is highly focused in the research-based innovation sector, and has made several contributions to it. Merck & Company operates with a patient-first approach, with a desire to improve lives on a global scale.

Strengths

Merck & Company has hired approximately 74,000 highly skilled employees, making its workforce unbeatable in the industry. 

In 2020, the company also invested a whopping $13.6 billion in research and development, which led to its strong position in the industries across borders. 

With its focus on philanthropy investments, the company has also built a strong rapport amongst its client base. Its lengthy portfolio of strong investments and a robust clientele has also led to Merck & Company becoming a strong brand name globally. The brand visibility and customer loyalty also adds to its strengths, as it continues to expand across continents.

Recent Results

In Q4 2021, which ended in December, Merck & Company earned sales totaling $48,704 million, with the total costs and expenses reaching $34,825 million. The net income from continuing operations reached $12,345 million (GAAP) and $15,282 million (non-GAAP). 

The basic and diluted earnings per share grew from $4.53 in FY 2020 to $6.02 in FY 2021. In the year that ended in December 2021, the comprehensive income attributable to the company totaled $15,282 million, which was an increase from the previous year’s report that showed a balance of $11,506 million. 

Additionally, the company’s balance sheet had a balanced debit and credit of $105,694 million on each side.

Valuation Metrics

MRK stock looks undervalued at the moment. Its EV/EBITDA ratio is slightly depressed relative to its history at 9.3 compared to its historical average of 11.1.

Moreover, its P/E ratio is discounted relative to its history at 10.6, compared to its historical average of 14.6 times.

Wall Street’s Take

According to Wall Street analysts, MRK earns a Moderate Buy analyst consensus based on eight Buy ratings, four Hold ratings, and zero Sell ratings in the past three months. Additionally, the average Merck price target of $90.42 puts the upside potential at 16.1%.

Summary and Conclusions

MRK stock is backed by an impressive intellectual property portfolio composed of its drug patents.

Wall Street analysts are generally bullish on it and the stock offers an attractive dividend yield, while its price target implies strong upside potential over the next year. As well, its valuation multiples trade at a discount to its historical averages.

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