Merck & Co Inc Valuation – November 2018 $MRK

Company Profile (excerpt from Reuters): Merck & Co., Inc., incorporated in 1970, is a global healthcare company. The Company offers health solutions through its prescription medicines, vaccines, biologic therapies and animal health products. It operates through four segments: Pharmaceutical, Animal Health, Healthcare Services and Alliances. The Company’s 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. The Company sells its human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed healthcare providers, such as health maintenance organizations, pharmacy benefit managers and other institutions. Vaccine products consist of preventive pediatric, adolescent and adult vaccines, primarily administered at physician offices.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MRK – November 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

 

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $197,784,653,364 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.44 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -38.49% Fail
6. Moderate PEmg Ratio PEmg < 20 40.82 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 6.24 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.44 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.42 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.86
MG Growth Estimate -3.53%
MG Value $2.69
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $27.02
MG Value based on 0% Growth $15.84
Market Implied Growth Rate 16.16%
Current Price $76.06
% of Intrinsic Value 2832.36%

Merck & Co., Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.44 in 2014 to an estimated $1.86 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 16.16% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Merck & Co., Inc. revealed the company was trading above its Graham Number of $27.34. The company pays a dividend of $1.89 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 40.82, which was above the industry average of 36.89. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-9.57.

Merck & Co., Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$9.57
Graham Number $27.34
PEmg 40.82
Current Ratio 1.44
PB Ratio 6.24
Current Dividend $1.89
Dividend Yield 2.48%
Number of Consecutive Years of Dividend Growth 7

Useful Links:

 

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $26,836,000,000
Total Current Liabilities $18,586,000,000
Long-Term Debt $19,936,000,000
Total Assets $85,130,000,000
Intangible Assets $30,433,000,000
Total Liabilities $52,474,000,000
Shares Outstanding (Diluted Average) 2,678,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $2.61
Dec2017 $0.87
Dec2016 $1.41
Dec2015 $1.56
Dec2014 $4.07
Dec2013 $1.47
Dec2012 $2.00
Dec2011 $2.02
Dec2010 $0.28
Dec2009 $5.65
Dec2008 $3.63
Dec2007 -$1.04
Dec2006 $2.03
Dec2005 $2.10
Dec2004 $2.62
Dec2003 $2.97
Dec2002 $3.14
Dec2001 $3.14
Dec2000 $2.90
Dec1999 $2.45
Dec1998 $2.15

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.86
Dec2017 $1.62
Dec2016 $2.03
Dec2015 $2.30
Dec2014 $2.44
Dec2013 $1.84
Dec2012 $2.26
Dec2011 $2.29
Dec2010 $2.32
Dec2009 $3.05
Dec2008 $1.79
Dec2007 $1.16
Dec2006 $2.37
Dec2005 $2.62
Dec2004 $2.91
Dec2003 $3.01
Dec2002 $2.93

Recommended Reading:

Other ModernGraham posts about the company

Merck & Co Inc Valuation – February 2018 $MRK
Merck & Co Inc Valuation – August 2016 $MRK
5 Overvalued Dow Components – July 2016
Merck & Co Inc Valuation – March 2016 $MRK
Merck & Co Valuation – November 2015 Update $MRK

Other ModernGraham posts about related companies

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Akorn Inc Valuation – July 2018 $AKRX
Mallinckrodt PLC Valuation – July 2018 $MNK
Bristol-Myers Squibb Company Valuation – June 2018 $BMY
Biogen Inc Valuation – June 2018 $BIIB
Mylan NV Valuation – June 2018 $MYL
Amgen Inc Valuation – June 2018 $AMGN

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Merck & Co Inc Valuation – February 2018 $MRK

Company Profile (obtained from Marketwatch): Merck & Co., Inc. engages in the provision of health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products. It operates through the following segments: Pharmaceutical, Animal Health, Alliances and Healthcare Services. The Pharmaceutical segment includes human health pharmaceutical and vaccine products marketed either directly by the company or through joint ventures. Its human health pharmaceutical products consist of therapeutic and preventive agents, generally sold by prescription, for the treatment of human disorders. The Animal Health segment discovers, develops, manufactures and markets animal health products, including vaccines, which it sells to veterinarians, distributors and animal producers. The Alliances segment includes revenue from the company relationship with AstraZeneca LP. The Healthcare Services segment provides services and solutions that focus on engagement, health analytics and clinical services to improve the value of care delivered to patients. The company was founded in 1970 and is headquartered in Kenilworth, NJ.

MRK Chart

MRK data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MRK – February 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $149,489,797,063 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.43 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -19.12% Fail
6. Moderate PEmg Ratio PEmg < 20 23.13 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.91 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.43 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.58 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $2.37
MG Growth Estimate -0.39%
MG Value $18.30
Opinion Overvalued
MG Grade D+
MG Value based on 3% Growth $34.40
MG Value based on 0% Growth $20.17
Market Implied Growth Rate 7.31%
Current Price $54.87
% of Intrinsic Value 299.87%

Merck & Co., Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.44 in 2014 to an estimated $2.37 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.31% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Merck & Co., Inc. revealed the company was trading above its Graham Number of $0. The company pays a dividend of $1.89 per share, for a yield of 3.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 23.13, which was below the industry average of 28.67, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-9.35.

Merck & Co., Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$9.35
Graham Number $0.00
PEmg 23.13
Current Ratio 1.43
PB Ratio 3.91
Current Dividend $1.89
Dividend Yield 3.44%
Number of Consecutive Years of Dividend Growth 7

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2017
Total Current Assets $27,919,000,000
Total Current Liabilities $19,467,000,000
Long-Term Debt $21,838,000,000
Total Assets $91,676,000,000
Intangible Assets $33,478,000,000
Total Liabilities $53,428,000,000
Shares Outstanding (Diluted Average) 2,727,000,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $4.09
Dec2017 $0.93
Dec2016 $1.41
Dec2015 $1.56
Dec2014 $4.07
Dec2013 $1.47
Dec2012 $2.00
Dec2011 $2.02
Dec2010 $0.28
Dec2009 $5.65
Dec2008 $3.63
Dec2007 -$1.04
Dec2006 $2.03
Dec2005 $2.10
Dec2004 $2.62
Dec2003 $2.97
Dec2002 $3.14
Dec2001 $3.14
Dec2000 $2.90
Dec1999 $2.45
Dec1998 $2.15

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $2.37
Dec2017 $1.64
Dec2016 $2.03
Dec2015 $2.30
Dec2014 $2.44
Dec2013 $1.84
Dec2012 $2.26
Dec2011 $2.29
Dec2010 $2.32
Dec2009 $3.05
Dec2008 $1.79
Dec2007 $1.16
Dec2006 $2.37
Dec2005 $2.62
Dec2004 $2.91
Dec2003 $3.01
Dec2002 $2.93

Recommended Reading:

Other ModernGraham posts about the company

Merck & Co Inc Valuation – August 2016 $MRK
5 Overvalued Dow Components – July 2016
Merck & Co Inc Valuation – March 2016 $MRK
Merck & Co Valuation – November 2015 Update $MRK
5 Most Overvalued Dow Components – July 2015

Other ModernGraham posts about related companies

Bristol-Myers Squibb Co Valuation – September 2017 $BMY
Momenta Pharmaceuticals Inc Valuation – Initial Coverage $MNTA
Depomed Inc Valuation – Initial Coverage $DEPO
Endo International PLC Valuation – July 2017 $ENDP
Biogen Inc Valuation – July 2017 $BIIB
Mylan NV Valuation – March 2017 $MYL
Amgen Inc Valuation – March 2017 $AMGN
Celgene Corporation Valuation – March 2017 $CELG
Ligand Pharmaceuticals Inc Valuation – Initial Coverage $LGND
Pfizer Inc Valuation – March 2017 $PFE

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Merck & Co Inc Valuation – August 2016 $MRK

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – August 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Merck & Co Inc (MRK) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Merck & Co., Inc. is a global healthcare company. The Company offers health solutions through its prescription medicines, vaccines, biologic therapies and animal health products, which it markets directly and through its joint ventures. It operates through one segment, Pharmaceutical. The Company’s 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. The Company sells these human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed healthcare providers. The Animal Health segment discovers, develops, manufactures and markets animal health products, including vaccines. The Company’s animal health products are sold to veterinarians, distributors and animal producers.

chart (61)

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MRK – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $175,717,515,100 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.87 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 0.49% Fail
6. Moderate PEmg Ratio PEmg < 20 25.80 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.05 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.87 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.82 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

MRK value chart August 2016

EPSmg $2.44
MG Growth Estimate 1.24%
MG Value $26.80
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $35.42
MG Value based on 0% Growth $20.76
Market Implied Growth Rate 8.65%
Current Price $63.01
% of Intrinsic Value 235.09%

Merck & Co., Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.26 in 2012 to an estimated $2.44 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.65% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Merck & Co., Inc. revealed the company was trading above its Graham Number of $30.56. The company pays a dividend of $1.83 per share, for a yield of 2.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 25.8, which was below the industry average of 38.69, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-9.03.

Merck & Co., Inc. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

MRK charts August 2016

Net Current Asset Value (NCAV) -$9.03
Graham Number $30.56
PEmg 25.80
Current Ratio 1.87
PB Ratio 4.05
Current Dividend $1.83
Dividend Yield 2.90%
Number of Consecutive Years of Dividend Growth 6

Useful Links:

 

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $27,926,000,000
Total Current Liabilities $14,918,000,000
Long-Term Debt $23,642,000,000
Total Assets $96,475,000,000
Intangible Assets $38,124,000,000
Total Liabilities $53,118,000,000
Shares Outstanding (Diluted Average) 2,789,000,000

Earnings Per Share History

Next Fiscal Year Estimate $2.65
Dec2015 $1.56
Dec2014 $4.07
Dec2013 $1.47
Dec2012 $2.00
Dec2011 $2.02
Dec2010 $0.28
Dec2009 $5.65
Dec2008 $3.63
Dec2007 -$1.04
Dec2006 $2.03
Dec2005 $2.10
Dec2004 $2.62
Dec2003 $3.05
Dec2002 $3.14
Dec2001 $3.14
Dec2000 $2.90
Dec1999 $2.45
Dec1998 $2.15
Dec1997 $1.87
Dec1996 $1.56

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.44
Dec2015 $2.30
Dec2014 $2.44
Dec2013 $1.84
Dec2012 $2.26
Dec2011 $2.29
Dec2010 $2.32
Dec2009 $3.05
Dec2008 $1.79
Dec2007 $1.17
Dec2006 $2.38
Dec2005 $2.64
Dec2004 $2.93
Dec2003 $3.03
Dec2002 $2.93
Dec2001 $2.72
Dec2000 $2.40

Recommended Reading:

Other ModernGraham posts about the company

5 Overvalued Dow Components – July 2016
Merck & Co Inc Valuation – March 2016 $MRK
Merck & Co Valuation – November 2015 Update $MRK
Merck & Co Inc Valuation – March 2016 $MRK
Merck & Co Valuation – November 2015 Update $MRK

Other ModernGraham posts about related companies

Vertex Pharmaceuticals Inc Valuation – August 2016 $VRTX
Amgen Inc Valuation – August 2016 $AMGN
Pfizer Inc Valuation – August 2016 $PFE
Abbott Laboratories Valuation – August 2016 $ABT
Johnson & Johnson Valuation – August 2016 $JNJ
Regeneron Pharmaceuticals Inc Valuation – August 2016 $REGN
AmerisourceBergen Corp Valuation – July 2016 $ABC
Perrigo Co PLC Valuation – July 2016 $PRGO
AbbVie Inc Valuation – July 2016 $ABBV
http://www.moderngraham.com/2016/07/20/abbvie-inc-valuation-july-2016-abbv/

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Merck & Co Inc Valuation – March 2016 $MRK

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – February 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Merck & Co Inc (MRK) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Merck & Co., Inc. is a global health care company. The Company offers health solutions through its prescription medicines, vaccines, biologic therapies and animal health products, which it markets directly and through its joint ventures. The Company’s 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. The Company sells these human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers. The Animal Health segment discovers, develops, manufactures and markets animal health products, including vaccines. The Company’s animal health products are sold to veterinarians, distributors and animal producers.

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[not-level-free]

Downloadable PDF version of this valuation:

ModernGraham Valuation of MRK

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $147,061,541,931 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.55 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 12.14% Fail
6. Moderate PEmg Ratio PEmg < 20 18.92 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.32 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.55 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.27 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

MRK value chart March 2016

EPSmg $2.76
MG Growth Estimate 3.36%
MG Value $42.07
Opinion Overvalued
MG Grade C+
MG Value based on 3% Growth $40.06
MG Value based on 0% Growth $23.48
Market Implied Growth Rate 5.21%
Current Price $52.26
% of Intrinsic Value 124.23%

Merck & Co., Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PB ratio. The Enterprising Investor is only concerned with the level of debt relative to the net current assets. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.26 in 2012 to an estimated $2.76 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.21% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

Merck & Co., Inc. receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

MRK charts March 2016

Net Current Asset Value (NCAV) -$9.62
Graham Number $36.12
PEmg 18.92
Current Ratio 1.55
PB Ratio 3.32
Dividend Yield 3.46%
Number of Consecutive Years of Dividend Growth 6

[/not-level-free]

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information Dec2015
Total Current Assets $29,764,000,000
Total Current Liabilities $19,203,000,000
Long-Term Debt $23,929,000,000
Total Assets $101,779,000,000
Intangible Assets $40,325,000,000
Total Liabilities $57,103,000,000
Shares Outstanding (Diluted Average) 2,841,000,000

Earnings Per Share History

Next Fiscal Year Estimate $3.61
Dec2015 $1.56
Dec2014 $4.07
Dec2013 $1.47
Dec2012 $2.00
Dec2011 $2.02
Dec2010 $0.28
Dec2009 $5.65
Dec2008 $3.63
Dec2007 -$1.04
Dec2006 $2.03
Dec2005 $2.10
Dec2004 $2.62
Dec2003 $2.97
Dec2002 $3.14
Dec2001 $3.14
Dec2000 $2.90
Dec1999 $2.45
Dec1998 $2.15
Dec1997 $1.87
Dec1996 $1.56

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.76
Dec2015 $2.30
Dec2014 $2.44
Dec2013 $1.84
Dec2012 $2.26
Dec2011 $2.29
Dec2010 $2.32
Dec2009 $3.05
Dec2008 $1.79
Dec2007 $1.16
Dec2006 $2.37
Dec2005 $2.62
Dec2004 $2.91
Dec2003 $3.01
Dec2002 $2.93
Dec2001 $2.72
Dec2000 $2.40

Recommended Reading:

Other ModernGraham posts about the company

Merck & Co Valuation – November 2015 Update $MRK
5 Most Overvalued Dow Components – July 2015
5 Most Overvalued Dow Components – June 2015
5 Most Overvalued Dow Components – May 2015
5 Most Overvalued Dow Components – February 2015

Other ModernGraham posts about related companies

Bristol-Myers Squibb Company Valuation – February 2016 $BMY
Amgen Inc Valuation – February 2016 $AMGN
Pfizer Inc Valuation – February 2016 $PFE
Biogen Inc Valuation – February 2016 Update $BIIB
Perrigo Co PLC Valuation – January 2016 Update $PRGO
Pfizer Inc Valuation – February 2016 $PFE
Biogen Inc Valuation – February 2016 Update $BIIB
Perrigo Co PLC Valuation – January 2016 Update $PRGO
Johnson & Johnson Valuation – January 2016 Update $JNJ
Mylan NV Valuation – January 2016 Update $MYL

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Merck & Co Valuation – November 2015 Update $MRK

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – October 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Merck & Co (MRK) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Merck & Co., Inc. is a global health care company. The Company offers health solutions through its prescription medicines, vaccines, biologic therapies and animal health products, which it markets directly and through its joint ventures. The Company’s 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. The Company sells these human health pharmaceutical products primarily to drug wholesalers and retailers, hospitals, government agencies and managed health care providers. The Animal Health segment discovers, develops, manufactures and markets animal health products, including vaccines. The Company’s animal health products are sold to veterinarians, distributors and animal producers.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of MRK – November 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $151,019,461,736 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.62 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 65.15% Pass
6. Moderate PEmg Ratio PEmg < 20 21.83 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.36 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.62 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.20 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

MRK value Chart November 2015

EPSmg $2.48
MG Growth Estimate 1.21%
MG Value $27.04
Opinion Overvalued
MG Value based on 3% Growth $35.92
MG Value based on 0% Growth $21.06
Market Implied Growth Rate 6.67%
Current Price $54.09
% of Intrinsic Value 200.01%

Merck & Co qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings stability over the last ten years and the high PEmg and PB ratios.  The Enterprising Investor is only initially concerned with the level of debt relative to the net current assets.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $2.29 in 2011 to an estimated $2.48 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 6.67% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Merck & Co (MRK)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

MRK Charts November 2015

Net Current Asset Value (NCAV) -$9.55
Graham Number $27.58
PEmg 21.83
Current Ratio 1.62
PB Ratio 3.36
Dividend Yield 3.33%
Number of Consecutive Years of Dividend Growth 5

 

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Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Total Current Assets $28,567,000,000
Total Current Liabilities $17,583,000,000
Long-Term Debt $24,124,000,000
Total Assets $101,232,000,000
Intangible Assets $41,485,000,000
Total Liabilities $55,645,000,000
Shares Outstanding (Diluted Average) 2,836,000,000

Earnings Per Share History

Next Fiscal Year Estimate $2.09
Dec14 $4.07
Dec13 $1.47
Dec12 $2.00
Dec11 $2.02
Dec10 $0.28
Dec09 $5.65
Dec08 $3.63
Dec07 -$1.04
Dec06 $2.03
Dec05 $2.10
Dec04 $2.62
Dec03 $2.97
Dec02 $3.14
Dec01 $3.14
Dec00 $2.90
Dec99 $2.45
Dec98 $2.15
Dec97 $1.87
Dec96 $1.56
Dec95 $1.32

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.48
Dec14 $2.44
Dec13 $1.84
Dec12 $2.26
Dec11 $2.29
Dec10 $2.32
Dec09 $3.05
Dec08 $1.79
Dec07 $1.16
Dec06 $2.37
Dec05 $2.62
Dec04 $2.91
Dec03 $3.01
Dec02 $2.93
Dec01 $2.72
Dec00 $2.40
Dec99 $2.06

Recommended Reading:

Other ModernGraham posts about the company

5 Most Overvalued Dow Components – July 2015
5 Most Overvalued Dow Components – June 2015
5 Most Overvalued Dow Components – May 2015
5 Most Overvalued Dow Components – February 2015
5 Most Overvalued Dow Components – February 2015

Other ModernGraham posts about related companies

Zoetis Inc. Valuation – October 2015 Update $ZTS
Biogen Inc. Valuation – October 2015 Update $BIIB
Perrigo Company PLC Analysis – October 2015 Update $PRGO
Amgen Inc. Analysis – September 2015 Update $AMGN
Pfizer Inc Analysis – September 2015 Update $PFE
Johnson & Johnson Analysis – September 2015 Update $JNJ
Celgene Corporation Analysis – September 2015 Update $CELG
Allergan PLC Analysis – August 2015 Update $AGN
The Best Companies of the Pharmaceuticals Industry – August 2015
Alexion Pharmaceuticals Inc. Analysis – August 2015 Update $ALXN

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Merck & Company Inc. Annual Valuation – 2014 $MRK

logo_MerckBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – November 2014.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Merck & Company (MRK) fares in the ModernGraham valuation model.

Company Profile (obtained 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. On July 2, 2014, Santen Pharmaceutical Co., Ltd acquired certain ophthalmology assets from Merck & Co., Inc. On August 5, 2014, Merck & Co Inc (Merck) acquired Idenix Pharmaceuticals Inc (Idenix).

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  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 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  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 – FAIL

Valuation Summary

Key Data:

Recent Price $59.25
MG Value $8.19
MG Opinion Overvalued
Value Based on 3% Growth $32.38
Value Based on 0% Growth $18.98
Market Implied Growth Rate 9.01%
Net Current Asset Value (NCAV) -$7.51
PEmg 26.53
Current Ratio 1.34
PB Ratio 3.81

Balance Sheet – September 2014

Current Assets $34,723,000,000
Current Liabilities $25,927,000,000
Total Debt $18,566,000,000
Total Assets $101,808,000,000
Intangible Assets $33,566,000,000
Total Liabilities $56,584,000,000
Outstanding Shares 2,911,000,000

Earnings Per Share

2014 (estimate) $3.46
2013 $1.47
2012 $2.00
2011 $2.02
2010 $0.28
2009 $5.65
2008 $3.64
2007 $1.49
2006 $2.03
2005 $2.10
2004 $2.61

Earnings Per Share – ModernGraham

2014 (estimate) $2.23
2013 $1.84
2012 $2.26
2011 $2.46
2010 $2.66
2009 $3.56

Dividend History

Conclusion:

Merck & Company does not qualify for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor is concerned by the low current ratio, lack of earnings growth over the last ten years along with the high PEmg and PB ratios.  The Enterprising Investor is similarly concerned by the lack of earnings growth over the last five years along with the high level of debt relative to the net current assets.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time.  From a valuation side of things,  the company appears to be overvalued after seeing its EPSmg (normalized earnings) drop from $2.66 in 2010 to only an estimated $2.23 for 2014.  This demonstrated lack of growth clearly does not support the market’s implied estimate of 9.01% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value well below the price.

Be sure to check out previous ModernGraham valuations of Merck & Company (MRK) for a greater perspective!

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Merck & Company (MRK)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Merck & Company (MRK) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

ModernGraham Valuation: Merck & Co (MRK)

money

Company Profile (obtained 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.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  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 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  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 – FAIL
  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 – FAIL

Valuation Summary (explanation of the ModernGraham valuation model):

Key Data:

MG Value $0 – Rare scenario. See Conclusion.
MG Opinion Overvalued
Value Based on 3% Growth $30
Value Based on 0% Growth $18
Market Implied Growth Rate 7.12%
Net Current Asset Value (NCAV) -$7.26
PEmg 22.73
Current Ratio 2.07
PB Ratio 2.90

Balance Sheet – 9/30/2013 (an Introduction to the Balance Sheet)

Current Assets $37,765,000,000
Current Liabilities $18,215,000,000
Total Debt $22,647,000,000
Total Assets $106,419,000,000
Intangible Assets $37,123,000,000
Total Liabilities $59,000,000,000
Outstanding Shares 2,926,610,000

Earnings Per Share – Diluted

2013 (estimate) $2.05
2012 $2.05
2011 $2.07
2010 $0.31
2009 $5.73
2008 $3.64
2007 $1.49
2006 $2.03
2005 $2.10
2004 $2.62
2003 $2.92
2002 $2.98

Earnings Per Share – Modern Graham

2013 (estimate) $2.07
2012 $2.30
2011 $2.50
2010 $2.69
2009 $3.59
2008 $2.47

Conclusion:

Merck & Co. presents a rare scenario for the ModernGraham valuation model.  The company’s earnings growth has been so atrocious over the historical period the model reviews that the projected growth is that the company will continue to shrink its earnings.  In fact, the EPSmg (normalized earnings) in 2008 was $2.47, but the estimated EPSmg in 2013 is only $2.07.  Historically, the EPSmg has shrunk every year since 2009.  As a result, the model forecasts negative earnings growth and churns out a valuation of $0.  Obviously, the company probably isn’t worthless, but the Intelligent Investor would probably shy away from Merck anyway, based on the facts that the company failed to fulfill the requirements of either the Defensive or Enterprising Investor due to the poor earnings growth and high PB and PEmg ratios.

What do you think?  Is Merck overvalued or does Mr. Market have it right?  Should the company only be considered speculative?  Leave a comment or mention @ModernGraham on Twitter to discuss.

Disclaimer:  The author did not hold a position in Merck at the time of publication and had no intention of purchasing a position in the next 72 hours.

Photo Credit:  Andrew Magill

5 Overvalued Dow Components – April 2019

There are so many great companies in the market today, but there are also many overvalued companies. By using the ModernGraham Valuation Model, I’ve selected five overvalued Dow Components reviewed by ModernGraham according to the ModernGraham approach.

Defensive Investors are defined as investors who need to select only the companies that present the least amount of risk. Enterprising Investors, on the other hand, are able to select companies that present a moderate (though still low) amount of risk. Each company suitable for the Defensive Investor is also suitable for Enterprising Investors.  Only speculators should pursue companies not suitable for either the Defensive Investor or the Enterprising Investor.

Chevron Corp (CVX)

Chevron Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $11.43 in 2014 to an estimated $5.06 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.57% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Chevron Corporation revealed the company was trading below its Graham Number of $121.52. The company pays a dividend of $4.32 per share, for a yield of 3.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 23.64, which was below the industry average of 60.49, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-34.6.

Chevron Corporation performs fairly well in the ModernGraham grading system, scoring a B-.  (Read the full valuation)

Exxon Mobil Corp (XOM)

Exxon Mobil Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $7.98 in 2014 to an estimated $4.14 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 5.28% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Exxon Mobil Corporation revealed the company was trading above its Graham Number of $67.18. The company pays a dividend of $3.06 per share, for a yield of 3.9%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 19.07, which was below the industry average of 50.98, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-24.31.

Exxon Mobil Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of D+.  (Read the full valuation)

The Coca-Cola Company (KO)

The Coca-Cola Co does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $1.85 in 2014 to an estimated $1.36 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 14.04% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into The Coca-Cola Co revealed the company was trading above its Graham Number of $13.29. The company pays a dividend of $1.48 per share, for a yield of 3%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 36.58, which was above the industry average of 25.8. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-7.75.

The Coca-Cola Co receives an average overall rating in the ModernGraham grading system, scoring a C-.  (Read the full valuation)

Merck & Co (MRK)

Merck & Co., Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.44 in 2014 to an estimated $1.86 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 16.16% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Merck & Co., Inc. revealed the company was trading above its Graham Number of $27.34. The company pays a dividend of $1.89 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 40.82, which was above the industry average of 36.89. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-9.57.

Merck & Co., Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D.  (Read the full valuation)

Caterpillar Inc. (CAT)

Caterpillar Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings stability or growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $5.79 in 2014 to an estimated $4.86 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 8.81% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Caterpillar Inc. revealed the company was trading above its Graham Number of $75.93. The company pays a dividend of $3.1 per share, for a yield of 2.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 26.12, which was below the industry average of 31.29, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-39.81.

Caterpillar Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D+.  (Read the full valuation)

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Incyte Corp Valuation – February 2019 $INCY

Company Profile (excerpt from Reuters): Incyte Corporation, incorporated on April 8, 1991, is a biopharmaceutical company. The Company is focused on the discovery, development and commercialization of therapeutics. The Company’s portfolio includes compounds in various stages, ranging from preclinical to late-stage development, and commercialized products, such as JAKAFI (ruxolitinib) and ICLUSIG (ponatinib). The Company has initiated REACH1, a pivotal Phase II trial in steroid-refractory acute graft-versus-host-disease (GVHD) and the first in a registration program for ruxolitinib in GVHD. A proof-of-concept trial of itacitinib, a selective janus associated kinases 1 (JAK1) inhibitor, is ongoing for the treatment of patients with acute GVHD.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of INCY – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $17,967,189,642 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.31 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -89.95% Fail
6. Moderate PEmg Ratio PEmg < 20 482.41 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 9.41 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 4.31 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.01 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $0.17
MG Growth Estimate 15.00%
MG Value $6.70
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $2.52
MG Value based on 0% Growth $1.48
Market Implied Growth Rate 236.96%
Current Price $83.94
% of Intrinsic Value 1253.02%

Incyte Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the lack of earnings stability over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $-0.32 in 2015 to an estimated $0.17 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 236.96% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Incyte Corporation revealed the company was trading above its Graham Number of $12.83. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 482.41, which was above the industry average of 39.51. Finally, the company was trading above its Net Current Asset Value (NCAV) of $5.15.

Incyte Corporation scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $5.15
Graham Number $12.83
PEmg 482.41
Current Ratio 4.31
PB Ratio 9.41
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $1,832,254,000
Total Current Liabilities $425,277,000
Long-Term Debt $17,434,000
Total Assets $2,645,762,000
Intangible Assets $370,957,000
Total Liabilities $719,795,000
Shares Outstanding (Diluted Average) 215,992,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $0.81
Dec2018 $0.51
Dec2017 -$1.53
Dec2016 $0.54
Dec2015 $0.03
Dec2014 -$0.29
Dec2013 -$0.56
Dec2012 -$0.34
Dec2011 -$1.49
Dec2010 -$0.26
Dec2009 -$2.06
Dec2008 -$1.99
Dec2007 -$1.03
Dec2006 -$0.89
Dec2005 -$1.24
Dec2004 -$2.21
Dec2003 -$2.33
Dec2002 -$2.03
Dec2001 -$2.77
Dec2000 -$0.47
Dec1999 -$0.48

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.17
Dec2018 -$0.15
Dec2017 -$0.44
Dec2016 $0.03
Dec2015 -$0.32
Dec2014 -$0.53
Dec2013 -$0.75
Dec2012 -$0.97
Dec2011 -$1.31
Dec2010 -$1.23
Dec2009 -$1.62
Dec2008 -$1.43
Dec2007 -$1.28
Dec2006 -$1.52
Dec2005 -$1.92
Dec2004 -$2.16
Dec2003 -$1.97

Recommended Reading:

Other ModernGraham posts about the company

Incyte Corp Valuation – April 2018 $INCY

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

Regeneron Pharmaceuticals Inc Valuation – February 2019 $REGN

Company Profile (excerpt from Reuters): Regeneron Pharmaceuticals, Inc., incorporated on January 11, 1988, is a biopharmaceutical company that discovers, invents, develops, manufactures and commercializes medicines for the treatment of serious medical conditions. The Company commercializes medicines for eye diseases, high low-density lipoprotein (LDL) cholesterol, and an inflammatory condition and have product candidates in development in other areas, including rheumatoid arthritis, asthma, atopic dermatitis, pain, cancer, and infectious diseases. The Company’s marketed products include EYLEA (aflibercept) Injection, Praluent (alirocumab) Injection, ARCALYST (rilonacept) Injection for Subcutaneous Use, Kevzara (sarilumab) Solution for Subcutaneous Injection and ZALTRAP (ziv-aflibercept) Injection for intravenous infusion. As of December 31, 2016, the Company had 16 product candidates in clinical development, which consisted of a Trap-based clinical program and 15 fully human monoclonal antibody product candidates. Its antibodies are generated using its VelocImmune technology.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of REGN – February 2019

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $45,297,630,364 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.47 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 1470.07% Pass
6. Moderate PEmg Ratio PEmg < 20 29.08 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 5.52 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 4.47 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.00 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $14.51
MG Growth Estimate 15.00%
MG Value $558.51
Opinion Fairly Valued
MG Grade C+
MG Value based on 3% Growth $210.35
MG Value based on 0% Growth $123.31
Market Implied Growth Rate 10.29%
Current Price $421.90
% of Intrinsic Value 75.54%

Regeneron Pharmaceuticals Inc is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Fairly Valued after growing its EPSmg (normalized earnings) from $4.12 in 2015 to an estimated $14.51 for 2019. This level of demonstrated earnings growth supports the market’s implied estimate of 10.29% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

At the time of valuation, further research into Regeneron Pharmaceuticals Inc revealed the company was trading above its Graham Number of $170.59. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 29.08, which was below the industry average of 39.51, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $30.26.

Regeneron Pharmaceuticals Inc receives an average overall rating in the ModernGraham grading system, scoring a C+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $30.26
Graham Number $170.59
PEmg 29.08
Current Ratio 4.47
PB Ratio 5.52
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

Useful Links:

ModernGraham tagged articles Morningstar
Google Finance MSN Money
Yahoo Finance Seeking Alpha
GuruFocus SEC Filings

Most Recent Balance Sheet Figures

Balance Sheet Information 12/1/2018
Total Current Assets $6,447,600,000
Total Current Liabilities $1,442,800,000
Long-Term Debt $0
Total Assets $11,734,500,000
Intangible Assets $0
Total Liabilities $2,977,200,000
Shares Outstanding (Diluted Average) 114,671,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $16.10
Dec2018 $21.29
Dec2017 $10.34
Dec2016 $7.70
Dec2015 $5.52
Dec2014 $2.98
Dec2013 $3.72
Dec2012 $6.75
Dec2011 -$2.45
Dec2010 -$1.26
Dec2009 -$0.85
Dec2008 -$1.00
Dec2007 -$1.59
Dec2006 -$1.77
Dec2005 -$1.71
Dec2004 $0.74
Dec2003 -$2.13
Dec2002 -$2.83
Dec2001 -$1.81
Dec2000 -$0.66
Dec1999 -$0.74

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $14.51
Dec2018 $12.33
Dec2017 $7.25
Dec2016 $5.58
Dec2015 $4.12
Dec2014 $2.92
Dec2013 $2.33
Dec2012 $1.16
Dec2011 -$1.56
Dec2010 -$1.18
Dec2009 -$1.22
Dec2008 -$1.29
Dec2007 -$1.39
Dec2006 -$1.37
Dec2005 -$1.30
Dec2004 -$1.17
Dec2003 -$1.96

Recommended Reading:

Other ModernGraham posts about the company

Regeneron Pharmaceuticals Inc Valuation – April 2018 $REGN
Regeneron Pharmaceuticals Inc Valuation – November 2016 $REGN
Regeneron Pharmaceuticals Inc Valuation – August 2016 $REGN
Regeneron Pharmaceuticals Inc. Annual Valuation – 2015 $REGN
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Zoetis Inc Valuation – January 2019 $ZTS
Gilead Sciences Inc Valuation – January 2019 $GILD
Pfizer Inc Valuation – November 2018 $PFE
Nektar Therapeutics Valuation – November 2018 $NKTR
Merck & Co Inc Valuation – November 2018 $MRK
Ligand Pharmaceuticals Inc Valuation – September 2018 $LGND

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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