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Merck & Co.

Merck & Co. (MRK)
$47.08 Closing price 4/16/04

EPS (FY end Dec.) EPS Growth Revenue
2003 Actual 2004 Est. 2005 Est. 2004 2005 2004 2005
1Q 0.68 0.72 5.88% $5.775Bil
2Q 0.79 0.77 -2.53% 5.700Bil
3Q 0.83 0.83 0.00% 6.000Bil
4Q 0.62 0.80 29.03% 6.000Bil
Year $2.92 $3.13 $3.38 7.19% 7.99% $23.48 Bil. $24.74 Bil.
P/E 15.4 14.4 13.3
Source: Zacks Investment Research


Market Data Key Ratios
Price $47.08 Debt/Total Equity 43.63%
52 Wk Range 40.57 - 63.50 Price/Sales (TTM) 4.48
Market Cap $100.81 Bil. Book Value $7.02
Shares Out $2.22 Bil. Price/Book 6.41
Dividend $1.48 ROE 43.80%
Yield 3.29% Current Ratio 1.205
Beta 0.36 Profit Margin 30.38%
Source: Yahoo Finance
Executive Summary

• The drug industry is positioned for continued growth due to converging macroeconomic, demographic and technological trends.
• Merck faces uncertain revenue growth due to patent expirations in June 2006 on Zocor and late 2007 for Fosamax, their top two selling drugs accounting for $7.7 billion in revenue for 2003.
• Merck has partnered with several other drug manufacturers to more efficiently develop and sell new drugs.
• The drug industry is under pricing pressure from generic manufacturers, health benefit managers, and political scrutiny.
• Developing or acquiring new blockbuster drugs is the key to driving revenue growth in the future for Merck.

Investment Conclusion: Hold

Based on analysis of Merck’s dividend growth rate the stock is priced above its valuation. However, due to concerns about Merck’s drug pipeline, revenue growth, and generic competition already being reflected in its current stock price, the stock is rated a hold. Further, Merck’s low P/E and attractive yield relative to the industry and S&P 500 provide investors with a margin of safety while waiting for an improvement in the drug pipeline.
Business Description

Merck is the third largest...