Merck (MRK) has had a strong year, especially since August after it bottomed below $29 a share. It just reached 52-week highs last week and pays a nice juicy dividend for interested parties. Here are six points to look at while considering the case for investing in Merck:
Valuation: Merck’s trailing 5-year valuation metrics suggest that the company is undervalued. Merck’s current P/B ratio is 2.1 and it has averaged 3.1 over the past 5 years with a low of 1.8 and a high of 7.0. Merck’s current P/S ratio is 2.5 and it has averaged 3.2 over the past 5 years with a low of 2.1 and a high of 5.2.
Price Target: The consensus price target for the analysts who follow Merck is $40.50. That is upside of just 5% from Merck’s current stock price. This is very limited upside as analysts are usually bullish on stocks.
Forward Valuation: Analysts forecast that Merck will earn $3.83 per share next year. With a current stock price of $38.47, that is a forward multiple of 10.0. Although there are no direct comps because of patents and proprietary products involved, it makes sense to look at what other large drug stocks are trading at. Abbott (ABT) is trading 11.1 times next year’s earnings. Lilly (LLY) is trading 11.7 times next year’s earnings. Pfizer (PFE) is trading 9.3 times next year’s earnings. Merck is trading below the mean forward P/E for the four large cap drug stocks.
Earnings Estimates: Merck beat EPS estimates by a slight margin (3 cents) for its last quarter but only met EPS estimates the previous quarter.To continue reading, click here.