MRK Up 7.4% in One Day, Should You Buy The Stock?

We believe there is a near-equal mix of good and bad in MRK stock given its overall Moderate operating performance and financial condition. This is aligned with the stock’s Moderate valuation because of which we think it is Fairly Priced. Here is our multi-factor assessment.

But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio and is designed to reduce stock-specific risk while giving upside exposure

Let’s get into details of each of the assessed factors but before that, for quick background: With $226 Bil in market cap, Merck provides human pharmaceuticals in various therapeutic areas and develops veterinary pharmaceuticals, vaccines, and health management solutions for animal health.

[1] Valuation Looks Moderate

This table highlights how MRK is valued vs broader market. For more details see: MRK Valuation Ratios

[2] Growth Is Inconsistent

• Merck has seen its top line grow at an average rate of 3.7% over the last 3 years
• Its revenues have grown 1.8% from $62 Bil to $64 Bil in the last 12 months
• Also, its quarterly revenues declined -1.9% to $16 Bil in the most recent quarter from $16 Bil a year ago.

This table highlights how MRK is growing vs broader market. For more details see: MRK Revenue Comparison

[3] Profitability Appears Very Strong

• MRK last 12 month operating income was $20 Bil representing operating margin of 31.2%
• With cash flow margin of 29.1%, it generated nearly $19 Bil in operating cash flow over this period
• For the same period, MRK generated nearly $16 Bil in net income, suggesting net margin of about 25.8%

This table highlights how MRK profitability vs broader market. For more details see: MRK Operating Income Comparison

[4] Financial Stability Looks Strong

• MRK Debt was $35 Bil at the end of the most recent quarter, while its current Market Cap is $226 Bil. This implies Debt-to-Equity Ratio of 15.9%
• MRK Cash (including cash equivalents) makes up $8.6 Bil of $118 Bil in total Assets. This yields a Cash-to-Assets Ratio of 7.3%

[4] Downturn Resilience Is Moderate

MRK saw an impact slightly worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• MRK stock fell 20.2% from a high of $90.54 on 4 November 2021 to $72.28 on 7 December 2021 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 12 May 2022
• Since then, the stock increased to a high of $132.96 on 24 June 2024 , and currently trades at $90.13

 
2020 Covid Pandemic

• MRK stock fell 27.9% from a high of $92.04 on 2 January 2020 to $66.40 on 23 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 16 May 2022

 
2008 Global Financial Crisis

• MRK stock fell 65.5% from a high of $60.77 on 10 December 2007 to $20.99 on 9 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 5 September 2014

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.