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. More...

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