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As part of a new series, each week we typically conduct a DCF on one of the companies in our screens. This week we thought we’d take a look at one of the stocks that is not currently in our screens, Merck & Co Inc (MRK).
ProfileMerck makes pharmaceutical products to treat several conditions in a number of therapeutic areas, including cardiometabolic disease, cancer, and infections. Within cancer, the firm’s immuno-oncology platform is growing as a major contributor to overall sales. The company also has a substantial vaccine business, with treatments to prevent pediatric diseases as well as human papillomavirus, or HPV. Additionally, Merck sells animal health-related drugs. From a geographical perspective, just under half of the company’s sales are generated in the United States.
Recent PerformanceOver the past twelve months the share price is up 17.27%.
Source: Google FinanceInputs
Forecasted Free Cash Flows (FCFs)
Terminal ValueTerminal Value = FCF * (1 + g) / (r – g) = 521.56 billionPresent Value of Terminal ValuePV of Terminal Value = Terminal Value / (1 + WACC)^5 = 408.66 billionPresent Value of Free Cash FlowsPresent Value of FCFs = ∑ (FCF / (1 + r)^n) = 58.24 billionEnterprise ValueEnterprise Value = Present Value of FCFs + Present Value of Terminal Value = 466.90 billionNet DebtNet Debt = Total Debt – Total Cash = 28.60 billionEquity ValueEquity Value = Enterprise Value – Net Debt = 438.30 billionPer-Share DCF ValuePer-Share DCF Value = Enterprise Value / Number of Shares Outstanding = $173.04
Conclusion
Based on the DCF valuation, the stock is undervalued. The DCF value of $173.04 share is higher than the current market price of $124.25. The Margin of Safety is 28.19%.More By This Author:The One Stock That Superinvestors Are Dumping: Is It Time to Sell WFC?Why Home Depot Inc. Stock Is A BuyApple Inc. (APPL) DCF Valuation: Is The Stock Undervalued?
