Merck & Co. is a global innovative healthcare company with a rich history of 125 years. The company provides a wide range of prescription medicines, vaccines, biologic therapies, and animal health products.
The company’s operations are managed through four segments, Pharmaceutical, Animal Health, Healthcare Services, and Alliances segments. The Pharmaceutical (~90% of total sales) and Animal Health (~10%) segments are the only reportable segments. In the human healthcare segment, Merck addresses various medical disciplines such as oncology, hospital acute care, immunology, neuroscience, virology, cardiovascular, diabetes, women’s health, etc.
Geographically, the U.S. is Merck’s largest market accounting for 43% of 2018 revenues, followed by EMEA, Asia Pacific, Japan, Latin America, China, and others. The company is known as Merck in the U.S. and Canada and MSD everywhere else. Its customers include physicians, wholesalers, hospitals, physician distributors and government entities.
Merck’s core product categories include drugs for diabetes, cancer, vaccines, and hospital acute care. A few of Merck’s best-selling products are Keytruda, Lenvima, Lynparza (cancer drugs), Januvia (industry leading diabetic drug), Zetia, etc.Investment Data
- Opportunity Score: 53
- Ticker: NYSE:MRK
- Sector: Healthcare
- Industry: Drug Manufacturers
- Market Cap: 231.61B
- P/E: 25.38
- Dividend Yield: 2.68
- Dividend Payout Ratio: 68.16
- Chowder Score: Dividend Snapshot Members Only
- 3, 5, 10-year Revenue Growth: Dividend Snapshot Members Only
- 3, 5, 10-year Dividend Growth: Dividend Snapshot Members Only
Revenue Growth & Market Exposure
Merck is at the forefront of fighting emerging diseases like Ebola. It is focusing its research on conditions that pose significant health challenges today like cancer, HIV, HPV, hepatitis C, Alzheimer’s disease, etc. The company is expanding its footprint in emerging markets which are expected to be huge markets for drugs and other medical products. Merck’s ex-U.S. global pharmaceutical sales registered a 23% growth in the last quarter, with China being the strongest. Over the years, the company has developed long-standing relationships with other leading industry names through external alliances, licensing arrangements, and collaborations.
Merck is well-positioned to compete in the search for technological innovations. The company spends extensively on R&D (23% of sales in 2018) to deliver innovative healthcare solutions. Merck is in an excellent position to benefit from the growing demand for oncology treatments. The company has also been restructuring its business to cut long-term costs. In the Animal Health segment, growth was driven by products acquired in the Antelliq acquisition, companion animal products, including BRAVECTO, and swine sales.
Merck’s revenues neared $10 billion mark in the last year and registered a 16% worldwide sales growth in the most recent quarter. The company should benefit from its robust pipeline with a wide range of product candidates across each phase of development. It has guided its FY2019 revenues to range between $46.5 billion and $47 billion.
Merck is a Dividend Starter. The company has a rich history of paying dividends for almost three decades and has increased dividends for the ninth year in a row. Its 10-year dividend growth stands at 2.7% CAGR. Earnings have grown at a rate of 14% CAGR in the last three years. The company sports an annual average dividend yield of 2.6% and a payout ratio of 60%. It returned $15 billion in dividends and share repurchases in the last year and last raised its dividend by an impressive 15%. The company also completed a $5 billion accelerated share repurchase program in the last year.
Merck follows a balanced capital allocation program to return cash to shareholders while investing in growth. The company’s focus on value-enhancing business development should also support future growth. It recently closed the Peloton Therapeutics acquisition. It also spent $5 billion on strategic acquisitions like Antelliq, Immune Design & Peloton in the last year. Merck is forecasting spending $16 billion on meaningful capital expenditure, including expanding manufacturing capacity for Oncology, Vaccines, and Animal Health over 2019-2023.
The company has guided its earnings range between $3.75 and $3.80 per share for FY 2019. Given its disciplined capital allocation strategy and growth in its core industry, Merck is poised to continue growing its dividends in the future.
Merck’s competitors include other worldwide research-based pharmaceutical companies, smaller research companies with more limited therapeutic focus, generic drug manufacturers and animal health care companies. The company also faces intense competition from generic and biosimilar products. Global reach, financial strength and scientific excellence are a few of Merck’s leading competitive advantages.
|Ticker||Company||Sector||Industry||Score||Quote||Market Cap||PE||FPE||EPS||Yield||Payout Ratio||Payments||Dividend||Chowder||Ambassador||Achiever||Aristocrat||King||Graph|
|JNJ||Johnson & Johnson||Healthcare||Drug Manufacturers||62||149.17||392.60||28.44||30.42||5.24||2.55||72.52||4||3.80||8.81||NO||YES||YES||YES||1|
|MRK||Merck & Co., Inc.||Healthcare||Drug Manufacturers||53||90.97||231.61||25.38||30.42||3.58||2.68||68.16||4||2.44||5.41||NO||NO||NO||NO||1|
|PFE||Pfizer Inc.||Healthcare||Drug Manufacturers||51||40.51||224.19||14.18||30.42||2.86||3.55||50.35||4||1.44||4.16||NO||NO||NO||NO||1|
|BMY||Bristol Myers Squibb Co.||Healthcare||Drug Manufacturers||45||66.72||156.40||19.31||30.42||3.46||2.70||52.02||4||1.80||0.81||NO||NO||NO||NO||1|
|AMGN||Amgen Inc.||Healthcare||Drug Manufacturers||55||241.49||143.49||18.53||30.42||13.03||2.40||44.51||4||5.80||21.06||NO||NO||NO||NO||1|
|ABBV||AbbVie Inc||Healthcare||Drug Manufacturers||43||88.00||130.14||40.45||30.42||2.18||5.36||216.51||4||4.72||5.34||NO||NO||YES||NO||1|
|GILD||Gilead Sciences Inc.||Healthcare||Drug Manufacturers||36||62.98||79.68||30.07||30.42||2.09||4.00||120.57||4||2.52||4.00||NO||NO||NO||NO||1|
Merck has a long history of making accessible and affordable medicines and vaccines. Its broad and innovative portfolio supports continued business growth. The company has been addressing 88% of the top 20 global burdens of disease with its products and solutions. Merck should gain from its rich pipeline addressing areas of high unmet need, over the next 5-10 years and should comfortably continue its dividend payment streak in the future.
The pipeline appears to be diversified and management appears to be managing for the future but it’s a highly competitive environment and investors should dig deeper to know what makes MRK different than the competition. I can’t see myself buying and sticking to it for 20 years at the moment.
DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see my Dividend Portfolio.