Stock Analysis on Net

Merck & Co. Inc. (NYSE:MRK)

Present Value of Free Cash Flow to Equity (FCFE)

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Intrinsic Stock Value (Valuation Summary)

Merck & Co. Inc., free cash flow to equity (FCFE) forecast

US$ in millions, except per share data

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Year Value FCFEt or Terminal value (TVt) Calculation Present value at 7.75%
01 FCFE0 13,327
1 FCFE1 -26 = 13,327 × (1 + -100.20%) -24
2 FCFE2 -7 = -26 × (1 + -74.24%) -6
3 FCFE3 -3 = -7 × (1 + -48.29%) -3
4 FCFE4 -3 = -3 × (1 + -22.34%) -2
5 FCFE5 -3 = -3 × (1 + 3.61%) -2
5 Terminal value (TV5) -70 = -3 × (1 + 3.61%) ÷ (7.75%3.61%) -48
Intrinsic value of Merck & Co. Inc. common stock -85
 
Intrinsic value of Merck & Co. Inc. common stock (per share) $-0.03
Current share price $131.95

Based on: 10-K (reporting date: 2023-12-31).

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.42%
Expected rate of return on market portfolio2 E(RM) 13.61%
Systematic risk of Merck & Co. Inc. common stock βMRK 0.36
 
Required rate of return on Merck & Co. Inc. common stock3 rMRK 7.75%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rMRK = RF + βMRK [E(RM) – RF]
= 4.42% + 0.36 [13.61%4.42%]
= 7.75%


FCFE Growth Rate (g)

FCFE growth rate (g) implied by PRAT model

Merck & Co. Inc., PRAT model

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Average Dec 31, 2023 Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019
Selected Financial Data (US$ in millions)
Cash dividends declared on common stock 7,551 7,134 6,715 6,307 5,820
Net income attributable to Merck & Co., Inc. 365 14,519 13,049 7,067 9,843
Sales 60,115 59,283 48,704 47,994 46,840
Total assets 106,675 109,160 105,694 91,588 84,397
Total Merck & Co., Inc. stockholders’ equity 37,581 45,991 38,184 25,317 25,907
Financial Ratios
Retention rate1 -19.69 0.51 0.49 0.11 0.41
Profit margin2 0.61% 24.49% 26.79% 14.72% 21.01%
Asset turnover3 0.56 0.54 0.46 0.52 0.55
Financial leverage4 2.84 2.37 2.77 3.62 3.26
Averages
Retention rate -3.64
Profit margin 17.53%
Asset turnover 0.53
Financial leverage 2.97
 
FCFE growth rate (g)5 -100.20%

Based on: 10-K (reporting date: 2023-12-31), 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31).

2023 Calculations

1 Retention rate = (Net income attributable to Merck & Co., Inc. – Cash dividends declared on common stock) ÷ Net income attributable to Merck & Co., Inc.
= (3657,551) ÷ 365
= -19.69

2 Profit margin = 100 × Net income attributable to Merck & Co., Inc. ÷ Sales
= 100 × 365 ÷ 60,115
= 0.61%

3 Asset turnover = Sales ÷ Total assets
= 60,115 ÷ 106,675
= 0.56

4 Financial leverage = Total assets ÷ Total Merck & Co., Inc. stockholders’ equity
= 106,675 ÷ 37,581
= 2.84

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= -3.64 × 17.53% × 0.53 × 2.97
= -100.20%


FCFE growth rate (g) implied by single-stage model

g = 100 × (Equity market value0 × r – FCFE0) ÷ (Equity market value0 + FCFE0)
= 100 × (334,182 × 7.75%13,327) ÷ (334,182 + 13,327)
= 3.61%

where:
Equity market value0 = current market value of Merck & Co. Inc. common stock (US$ in millions)
FCFE0 = the last year Merck & Co. Inc. free cash flow to equity (US$ in millions)
r = required rate of return on Merck & Co. Inc. common stock


FCFE growth rate (g) forecast

Merck & Co. Inc., H-model

Microsoft Excel
Year Value gt
1 g1 -100.20%
2 g2 -74.24%
3 g3 -48.29%
4 g4 -22.34%
5 and thereafter g5 3.61%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= -100.20% + (3.61%-100.20%) × (2 – 1) ÷ (5 – 1)
= -74.24%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= -100.20% + (3.61%-100.20%) × (3 – 1) ÷ (5 – 1)
= -48.29%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= -100.20% + (3.61%-100.20%) × (4 – 1) ÷ (5 – 1)
= -22.34%