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September 01, 2020 1:41pm
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This Health Care Stock Is a No-Brainer Buy for Fall

Merck & Co.’s (MRK) third-quarter financials surpassed Wall Street’s expectations. The stock is trading near its 52-week high of $101.50, and its momentum is expected to continue, considering its strong fundamentals. Given the company’s solid growth, reliable dividend payments, and the resilience of its sector against the expected economic slowdown, this stock might be a no-brainer pick now. Read on…

Healthcare giant Merck & Co., Inc. (MRK) operates in two segments, Pharmaceutical and Animal Health. On October 18, 2022, MRK Animal Health launched Animo® GPS, an activity and behavior monitor for dogs with GPS tracking capabilities, which marks a significant addition to the company’s product portfolio.

Moreover, today, Veeva Systems (VEEV) announced a ten-year strategic partnership agreement with MRK that builds on the existing 12-year partnership between the companies.

“Our strategic partnership with Veeva expands our capacity to leverage innovative technology and enhances our ability to deliver value to patients and all our stakeholders – this is key to how we measure success,” said Robert M. Davis, chief executive officer and president of Merck.

In addition, MRK’s third-quarter earnings ended September 2022, surpassed Wall Street’s estimates. Also, Wall Street analysts expect the stock to hit $107.62 soon, indicating a potential upside of 6.3%.

MRK paid consecutive dividends for 11 years. Its dividend payouts have grown at 9% CAGR over the past five years and 9.6% CAGR over the past three years. Its current dividend yield is 2.73%, while its four-year average yield is 2.95%.

MRK has gained 17.5% to close the last trading session at $101.20. It has gained 32.1% year-to-date and 14.9% over the past year.

Here is what could shape MRKs’ performance in the near term:

Solid Financials

MRK’s sales came in at $14.96 billion for the third quarter that ended September 2022, up 13.7% year-over-year. Its non-GAAP net income came in at $4.70 billion, up 3.9% year-over-year, while its non-GAAP EPS came in at $1.85, up 3.9% year-over-year.

Attractive Valuation

MRK’s forward EV/EBITDA of 11.05x is 17.1% lower than the industry average of 13.33x. Its forward Price/Sales of 4.35x is lower than the industry average of 4.38x. Also, its forward P/E of 16.67x is 32.8% lower than the industry average of 24.79x. Moreover, its forward Price/Cash Flow of 11.57x is 30.6% lower than the industry average of 16.66x.

Robust Profitability

MRK’s trailing-12-month gross profit margin of 74.10% is 36.4% higher than the industrial average of 54.31%. Its trailing-12-month EBITDA margin of 46.80% is 1,321.6% higher than the industry average of 3.29%, while its trailing-12-month net income margin of 25.88% is higher than the negative industry average of 3.03%.

In addition, its trailing-12-month ROCE, ROTC, and ROTA of 38.77%, 21.96%, and 14.25%, compared with the industry averages of negative 38.90%, 21.59%, and 29.64%, respectively.

POWR Ratings Reflect Promising Outlook

MRK has an overall POWR Rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock has a B grade for Value and Quality, consistent with its lower-than-industry valuation multiples and higher-than-industry profitability margins, respectively.

Also, it has a B grade for Stability, in sync with its beta of 0.33.

In the 164-stock Medical – Pharmaceuticals industry, MRK is ranked #6.

Click here for the additional POWR Ratings for MRK (Growth, Momentum, and Sentiment).

View all the top stocks in the Medical – Pharmaceuticals industry here.

Bottom Line

MRK’s third-quarter financials surpassed Wall Street estimates. Moreover, its revenue and EPS are estimated to grow 21% and 22.4% year-over-year to $58.94 billion and $7.37 in 2022. Also, the stock is trading around its 52-week high of $101.50, which it hit on October 27, 2022. Given the stock’s solid fundamentals, I think MRK might be an ideal investment.

How Does Merck & Co., Inc. (MRK) Stack Up Against Its Peers?

While MRK has an overall POWR Rating of A, one might consider looking at its industry peers, Novo Nordisk A/S (NVO), AbbVie Inc. (ABBV), and Bristol-Myers Squibb Company (BMY), which also have an overall A (Strong Buy) rating.

MRK shares were trading at $100.10 per share on Tuesday afternoon, down $1.10 (-1.09%). Year-to-date, MRK has gained 33.92%, versus a -17.91% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.


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