Merck & Co Inc (MRK) Valuation

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Company Profile (obtained from Google Finance): Merck & Co., Inc. (Merck) is a global research-driven pharmaceutical company that discovers, develops, manufactures and markets a range of products to improve human and animal health. The Company’s operations are principally managed on a products basis and consist of two business segments. The Pharmaceutical segment includes human health pharmaceutical products marketed either directly or through joint ventures. These products consist of therapeutic and preventive agents, sold by prescription, for the treatment of human disorders. The Vaccines and Infectious Diseases segment includes human health vaccine products marketed either directly or through a joint venture. These products consist of preventative pediatric, adolescent and adult vaccines, primarily administered at physician offices. Infectious disease products consist of therapeutic agents for the treatment of infection sold primarily to drug wholesalers and retailers, hospitals and government agencies.

ModernGraham Comments: None at this time.

Defensive and Enterprising Investor Tests:

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7

1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – FAIL
6. Moderate PEmg ratio – PEmg is less than 20 – PASS
7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests: Score = 5/5

1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
3. Earnings Stability – positive earnings per share for at least 5 years – PASS
4. Dividend Record – currently pays a dividend – PASS
5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary:

• Last Updated    11/2/2009
• MG Value    $37
• MG Opinion    Fairly Valued
• Value Based on 3% Growth    $43
• Value Based on 0% Growth    $25
• Market Implied Growth Rate    1.00%
• Net Current Asset Value (NCAV)    $0.07
• PEmg    10.50
• Current Ratio    2.54
• PB Ratio    3.21

Key Data:

Balance Sheet – 6/30/2009

• Current Assets    $29,233,900,000
• Current Liabilities    $11,507,100,000
• Total Debt    $8,181,100,000
• Total Assets    $49,407,100,000
• Intangible Assets    $581,100,000
• Goodwill    $1,439,000,000
• Total Liabilities    $29,082,700,000
• Outstanding Shares    2,108,860,000

Earnings Per Share – Diluted

• 2009 (estimate)    $3.80
• 2008    $3.64
• 2007    $1.49
• 2006    $2.03
• 2005    $2.10
• 2004    $2.62
• 2003    $2.92
• 2002    $2.98
• 2001    $3.04
• 2000    $2.90
• 1999    $2.45

Earnings Per Share – Modern Graham

• 2009 (estimate)    $2.95
• 2008    $2.47
• 2007    $2.00
• 2006    $2.35
• 2005    $2.58
• 2004    $2.85

Valuation History:

• 11/2/09 – Value $37, Actual Price $30.93, Fairly Valued & Defensive
• 7/17/09 – Value $28, Actual Price $27.68, Fairly Valued & Enterprising