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Must-Read Notes on Merck & Co.’s 4Q17 and 2017 Earnings

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Part 9
Must-Read Notes on Merck & Co.’s 4Q17 and 2017 Earnings PART 9 OF 10

Merck’s Valuations after Its 4Q17 Earnings

Merck & Co.’s valuations

Merck & Co. reported earnings per share (or EPS) of $0.98 on revenues of $10.4 billion in 4Q17. This EPS metric represents 3.0% growth in revenues compared to EPS of $0.89 on revenues of $10.1 billion in 4Q16. The chart below shows revenues and EPS for Merck & Co. since 1Q16. 

Merck’s Valuations after Its 4Q17 Earnings

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For 4Q17, Merck & Co. missed analysts’ estimates for revenues, but it surpassed analysts’ estimates for EPS. The company reported EPS of $0.98 compared to the estimated EPS of $0.94. 

Forward PE

PE multiples represent what one share can buy for an equity investor. On February 12, 2018, Merck & Co. was trading at a forward PE multiple of ~13.1x, while the industry traded at a forward PE multiple average of 14.6x. 

On that date, Merck’s competitors Eli Lilly & Co. (LLY), Pfizer (PFE), and Johnson & Johnson (JNJ) traded at higher forward PE multiples of 15.4x, 11.5x, and 15.9x, respectively.

Forward EV-to-EBITDA

On a capital structure–neutral basis, Merck & Co. traded at a forward EV-to-EBITDA1 multiple of ~10.8x on February 12, 2018. This metric is much lower than the industry average of ~12.2x. 

On that date, Merck’s competitors Eli Lilly & Co. (LLY), Pfizer (PFE), and Johnson & Johnson (JNJ) traded at higher forward EV-to-EBITDA multiples of 12.4x, 10.1x, and 12.1x, respectively.

The Health Care Select Sector SPDR ETF (XLV) holds 4.8% in Merck & Co. (MRK), 2.4% in Eli Lilly & Co. (LLY), 6.5% in Pfizer (PFE), and 11.1% in Johnson & Johnson (JNJ).

  1.  earnings before interest, tax, depreciation, and amortization
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