Merck & Co. Inc. (MRK)

Price to FCFE (P/FCFE)

Difficulty: Intermediate

Merck & Co. Inc., FCFE calculation

USD $ in millions

12 months ended	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
Net income attributable to Merck & Co., Inc.	6,220	2,394	3,920	4,442	11,920
Net (income) loss attributable to noncontrolling interests	(27)	24	21	17	14
Net noncash charges	6,282	9,050	9,036	8,230	(5,898)
Net changes in assets and liabilities	(1,553)	(5,021)	(2,601)	(268)	1,824
Net cash provided by operating activities	10,922	6,447	10,376	12,421	7,860
Capital expenditures	(2,615)	(1,888)	(1,614)	(1,283)	(1,317)
Net change in short-term borrowings	5,124	(26)	—	(1,540)	(460)
Payments on debt	(4,287)	(1,103)	(2,386)	(2,906)	(6,617)
Proceeds from issuance of debt	—	—	1,079	7,938	3,146
Free cash flow to equity (FCFE)	9,144	3,430	7,455	14,630	2,612

Item	Description	The company
FCFE	Free cash flow to equity is the cash flow available to Merck & Co. Inc.’s equity holders after all operating expenses, interest, and principal payments have been paid and necessary investments in working and fixed capital have been made.	Merck & Co. Inc.’s FCFE declined from 2016 to 2017 but then increased from 2017 to 2018 exceeding 2016 level.

Merck & Co. Inc., current P/FCFE calculation, comparison to benchmarks

No. shares of common stock outstanding	2,560,374,643
Selected Financial Data (USD $)
Free cash flow to equity (FCFE) (in millions)	9,144
FCFE per share	3.57
Current share price (P)	85.06
Ratio
P/FCFE	23.82
Benchmarks
P/FCFE, Competitors¹
Abbott Laboratories	—
AbbVie Inc.	5.96
Allergan PLC	—
Amgen Inc.	12.97
Biogen Inc.	7.90
Bristol-Myers Squibb Co.	17.30
Celgene Corp.	7.23
Eli Lilly & Co.	29.74
Gilead Sciences Inc.	65.22
Johnson & Johnson	23.77
Pfizer Inc.	15.10
Regeneron Pharmaceuticals Inc.	17.99
P/FCFE, Sector
Pharmaceuticals & Biotechnology	18.98
P/FCFE, Industry
Health Care	21.01

¹ Click competitor name to see calculations.

If company P/FCFE is lower then the P/FCFE of benchmark then company is relatively undervalued.

Otherwise, if company P/FCFE is higher then the P/FCFE of benchmark then company is relatively overvalued.

Merck & Co. Inc., historical P/FCFE calculation, comparison to benchmarks

	Dec 31, 2018	Dec 31, 2017	Dec 31, 2016	Dec 31, 2015	Dec 31, 2014
No. shares of common stock outstanding¹	2,581,220,308	2,696,190,502	2,745,571,067	2,775,258,591	2,838,192,933
Selected Financial Data (USD $)
Free cash flow to equity (FCFE) (in millions)²	9,144	3,430	7,455	14,630	2,612
FCFE per share³	3.54	1.27	2.72	5.27	0.92
Share price^1, 4	80.62	54.72	65.87	50.64	58.54
Ratio
P/FCFE⁵	22.76	43.01	24.26	9.61	63.61
Benchmarks
P/FCFE, Competitors⁶
Abbott Laboratories	—	70.38	5.13	18.90	21.25
AbbVie Inc.	7.33	19.98	8.15	3.73	35.01
Allergan PLC	—	26.66	—	4.09	15.16
Amgen Inc.	12.46	11.98	9.37	11.59	17.65
Biogen Inc.	12.11	34.09	15.05	6.58	34.98
Bristol-Myers Squibb Co.	18.62	20.01	52.51	—	45.57
Celgene Corp.	6.78	10.96	24.05	8.20	21.11
Eli Lilly & Co.	35.24	11.21	13.88	49.65	13.49
Gilead Sciences Inc.	67.92	5.70	4.79	4.29	10.09
Johnson & Johnson	24.90	14.21	14.18	16.84	17.94
Pfizer Inc.	18.96	16.06	12.30	12.81	13.27
Regeneron Pharmaceuticals Inc.	24.51	32.42	41.47	75.10	218.80
P/FCFE, Sector
Pharmaceuticals & Biotechnology	20.31	15.67	13.54	9.16	19.14
P/FCFE, Industry
Health Care	21.84	15.92	14.70	8.44	18.06

¹ Data adjusted for splits and stock dividends.

³ 2018 Calculation
FCFE per share = FCFE ÷ No. shares of common stock outstanding
= 9,144,000,000 ÷ 2,581,220,308 = 3.54

⁴ Close price on the filing date of Merck & Co. Inc.’s Annual Report.

⁵ 2018 Calculation
P/FCFE = Share price ÷ FCFE per share
= 80.62 ÷ 3.54 = 22.76

⁶ Click competitor name to see calculations.

Ratio	Description	The company
P/FCFE	Price to free cash flow to equity is cash valuation indicator of stockholders’ equity.	Merck & Co. Inc.’s P/FCFE ratio increased from 2016 to 2017 but then declined significantly from 2017 to 2018.