Healthcare giant Merck & Co., Inc. (MRK) operates in two segments, Pharmaceutical and Animal Health. On September 22, 2022, MRK Animal Health announced its definitive agreement to acquire virtual fencing innovator Vence.

Rick DeLuca, president of MRK Animal Health, said, "The acquisition of Vence will broaden our portfolio with complementary products and technologies to advance animal health and well-being as well as outcomes for our customers."

MRK paid consecutive dividends for 11 years. Its dividend payouts have grown at 9% CAGR over the past five years and 9.6% CAGR over the past three years. Its current dividend yield is 2.99%, while its four-year average yield is 2.95%.

MRK has gained 6% over the past month to close the last trading session at $92.90. It has gained 20.3% year-to-date and 17.7% over the past year.

Here is what could shape MRK's performance in the near term:

Solid Financials

MRK's total sales came in at $14.59 billion for the 2022 second quarter, up 28% year-over-year. Its net income came in at $3.94 billion, up 155.3% year-over-year, while its EPS came in at $1.55, up 154.1% year-over-year.

Attractive Valuations

MRK's forward EV/EBITDA of 10.34x is 18% lower than the industry average of 12.62x. Its forward Price/Sales of 3.99x is 5.4% lower than the industry average of 4.22x.

Also, its forward P/E of 15.14x is 31.1% lower than the industry average of 21.98x. Moreover, its forward Price/Cash Flow of 12.81x is 17.1% lower than the industry average of 15.45x.

Robust Profitability Margins

MRK's trailing-12-month gross profit margin of 70.77% is 30.3% higher than the industrial average of 54.31%. Its trailing-12-month EBITDA margin of 41.07% is 1,147.6% higher than the industry average of 3.29%, while its trailing-12-month net income margin of 29.00% is higher than the negative industry average of 2.69%.

In addition, its trailing-12-month ROCE, ROTC, and ROTA of 43.48%, 18.49%, and 15.48%, compared with the industry averages of negative 38.60%, 21.31%, and 29.64%, respectively.

POWR Ratings Reflect Promising Outlook

MRK has an overall rating of A, which equates to a Strong Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

The stock has a B grade for Value and Quality, consistent with its lower-than-industry valuation multiples and higher-than-industry profitability margins, respectively.

In the 163-stock Medical – Pharmaceuticals industry, MRK is ranked first.

Click here for the additional POWR Ratings for MRK (Growth, Momentum, Stability, and Sentiment).

View all the top stocks in the Medical – Pharmaceuticals industry here.

Bottom Line

The company has delivered a steady performance in the last reported quarter. MRK's revenue and EPS are estimated to grow 20.3% and 21.9% year-over-year to $58.57 billion and $7.34 in 2022. Given the stock's sound fundamentals, I think MRK could be an ideal addition to your portfolio.

How Does Merck & Co., Inc. (MRK) Stack Up Against its Peers?

While MRK has an overall POWR Rating of A, one might consider looking at its industry peers, Novartis AG (NVS), AbbVie Inc. (ABBV), and Bristol-Myers Squibb Company (BMY), which also have an overall A (Strong Buy) rating.

MRK shares were trading at $93.67 per share on Monday afternoon, up $1.49 (+1.62%). Year-to-date, MRK has gained 25.32%, versus a -21.94% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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