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What’s Merck’s Valuation in March 2018?

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Merck’s valuation

Merck (MRK) reported 3% growth in revenues to $10.4 billion during 4Q17 as compared to revenues of $10.1 billion in 4Q16.

The above chart shows revenues and earnings per share (or EPS) for Merck over the last few quarters. For 4Q17, Merck missed analysts’ estimates for revenues but surpassed analysts’ EPS estimates with reported EPS of $0.98 as compared to the estimates of $0.94.

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Forward PE

Price-to-earnings multiples represent what one share can buy for an equity investor. On March 28, 2018, Merck was trading at a forward PE multiple of ~12.7x, while the industry currently trades at a forward PE multiple of 12.2x. Novartis (NVS) and Johnson & Johnson (JNJ) are trading at a higher forward PE multiple of 14.5x and 15.5x, respectively, while Pfizer (PFE) is trading at a lower forward PE multiple of 11.7x.

Forward EV-to-EBITDA

On a capital-structure-neutral basis, Merck was trading at a forward EV-to-EBITDA multiple of ~10.4x on March 28, 2018, which is much lower than the industry average of ~11.6x. Novartis (NVS) and Johnson & Johnson (JNJ) are trading at higher forward EV-to-EBITDA multiples of 13.0x and 11.7x, respectively, while Pfizer (PFE) is trading at a lower forward EV-to-EBITDA multiple of 9.8x as compared to Merck.

The iShares US Pharmaceuticals ETF (IHE) holds 7.6% of its total investments in Merck (MRK), 10.4% in Johnson & Johnson (JNJ), and 8.6% in Pfizer (PFE).

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