Thursday, May 21, 2015

Analysis of Merck 2015


Merck, a German pharmaceutical and chemical company

Company: Merck

ISIN DE0006599905 | WKN 659990  

Business: A German bio pharmaceutical and chemical company. They are divided into three business sectors: Healthcare (Merck Serono, Consumer Health, Allergopharma and Biosimilars), Life Science (Merck Millipore) and the third one is Performance Materials.  

Active: World wide with employees in 65 countries

P/E: 36.1

Here you can find the previous analysis of Merck 2014

contrarian values of P/E, P/B, ROE as well as dividend for Merck

The P/E of Merck is very high with 36.1 and the P/B is also high with 3.7 which gives a no go from Graham. They do however have excellent earnings to sales with 11% but the ROE is only at 10%. The book to debt ratio is ok with 0.8.
In the last five years they have had an excellent yearly revenue of 4.8% which gives us a motivated P/E of 15 to 18 which means that Merck today is highly overvalued on the market.
They spend a lot on research since it is up at 142% of their earnings so I do find that to be too much.
They pay a dividend in the size of 1% so with that you will not beat inflation and it sadly enough correspond to 36% of their earnings.

Conclusion: Graham says no and so do I. All the key values turn out very unfavourable for making an investment in Merck. They do make very interesting acquisitions (the latest Sigma-Aldrich) and with only 30% of the stocks traded on the market it can too easily lead to a too high share price from the initial excitement.

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