A Love Affair with Merck

January 07, 2013

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E = Equity to Debt Ratio Is Strong

The debt-to-equity ratio for Merck isn’t just strong, but it’s stronger than the debt-to-equity ratios for GlaxoSmithKline (NYSE:GSK) and Pfizer (NYSE:PFE). Merck is also the only company of the three with a positive balance sheet.

	Debt-To-Equity	Cash	Long-Term Debt
MRK	0.34	$18.12 Billion	$17.57 Billion
GSK	2.49	$5.83 Billion	$21.06 Billion
PFE	0.47	$22.97 Billion	$31.08 Billion

T = Technicals on the Stock Chart Are Mixed

Merck has performed well over the past three years, but it hasn’t performed as well as Pfizer. Over the long haul, these three stocks will cross paths. Don’t fall into the trap of attempting to time FDA approvals.

	1 Month	Year-To-Date	1 Year	3 Year
MRK	-4.80%	2.52%	13.66%	26.88%
GSK	1.84%	1.82%	1.26%	25.69%
PFE	1.37%	3.51%	25.06%	57.49%

At $41.97, Merck is trading below all its averages.

50-Day SMA	43.94
100-Day SMA	44.31
200-Day SMA	42.07

E = Earnings Have Been Sporadic

Earnings have been sporadic, but that should be expected from a drug manufacturer. Sporadic revenue should also be expected, but Merck has proven to be one of the most consistent revenue growers in the industry.

	2007	2008	2009	2010	2011
Revenue ($)in billions	24.20	23.85	27.43	45.99	48.05
Diluted EPS ($)	1.49	3.63	5.65	0.28	2.02

When we look at last quarter on a YoY basis, we see a drop in revenue and a slight increase in earnings. However, in this industry, it’s better to focus on the annual results.

	9/2011	12/2011	3/2012	6/2012	9/2012
Revenue ($)in billions	12.02	12.29	11.73	12.31	11.49
Diluted EPS ($)	0.55	0.48	0.56	0.58	0.56

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