Merck is a global health care company that was founded in 1891 and is headquartered in Kenilworth, New Jersey. The large healthcare company offers prescription medications, vaccines, animal health products, and biological drugs. Merck’s products cover a wide range of conditions including asthma, cancer, cardiovascular disease, and osteoporosis. The firm also has a broad vaccine line including treatments for HPV, shingles, and hepatitis.
Merck has a market capitalization of $181 billion. It is currently the sixth largest pharmaceutical company in the world by revenue ($39.5 billion). Merck has maintained a three-year growth rate of dividends of 2.3 percent. Merck currently ranks 7th in yield within the large cap healthcare, major drug manufacturer category. The quarterly dividend for the January payment will be $0.47 versus the prior year rate of $0.46 per share.
The dividend will be paid at the new higher rate on January 9, 2017, to shareholders of record at close of business on December 12, 2016. Merck is currently priced at $62.21. Listed in the table below are the quarterly dividend payments since 2010.
We examine Merck upon our five key criteria, which include;
|Dividend Growth (3 to 6 year avg)||2.8%||344|
|S&P Financial Rating||AA||40|
Additional quantitative information on P/S ratio and historical yield;
|% Yield||3 Year Div. Growth Rate||6 Year Div. Growth Rate||SPS 2016||P/S Ratio||10 yr P/S Low||10 yr P/S High||5 yr lowest Yield %||5 yr max Yield %|
- Merck’s dividend yield is above that of the S&P 500 Index.
- Merck has paid out a dividend consecutively for the last 23 years.
- Merck’s forward P/E ratio is near 16, below the average of the market.
- Merck maintains a beta of 0.80, much lower than the average company.
- Merck is trading slightly above its ten-year average price/sales (P/S) average.
Latest Earnings & Overall Analysis:
Merck issued its Q3 earnings data on October 25th. The company reported $1.07 earnings per share for the quarter, beating the average estimate by 8 cents. The firm had revenue of $10.54 billion for the quarter, much higher than the consensus estimate of $10.16 billion. The company raised its 2016 earnings and revenue guidance. The company announced expectations for earnings in the range of $3.71 to $3.78 per share, upping the bottom of the range. The pharmaceutical giant expects revenues in the range of $39.7 billion-$40.2 billion, slightly above prior expectations. Both earnings and revenue projections took into account negative currency implications of 1-2%. At the time of releasing second-quarter 2016, the company had guided towards revenues of $39.1 billion-$40.1 billion, including an approximately 2% negative impact from foreign exchange.
The positive results were based upon several factors. Merck’s Pharmaceutical division posted excellent results as revenue climbed 6% to $9.4 billion from Q3 of 2015. Key drugs such as Keytruda and Gardasil performed well. Keytruda brought in revenue of $356 million in Q3, above estimates as the drug continues to gain new indications. Merck’s Keytruda is one of the “key” elements to owning Merck shares outside of its healthy dividend. The drug just received another priority review tag from the FDA. This was for the treatment for patients with advanced microsatellite instability-high cancer. There is no current treatment in this area. If approval comes for this indication, it would add to the growing list of conditions that Keytruda is approved for including non-small cell lung cancer, melanoma, and head-and-neck cancer. Merck’s Keytruda continues to gain ground on first to market Bristol-Myers Squibb (NYSE:BMY) drug Opdivo. Opdivo also recently had a setback on a first-line monotherapy trial.
Outside of Keytruda, vaccines were the star for Merck. The company took in over $2 billion in sales with vaccine products. This was nearly 30% above last year’s vaccine revenue haul. Gardasil continues to be a leading product for Merck. Its growth rate was 38% over the previous year, with sales of $860 million. This was nearly 20% above analyst estimates.Merck’s pneumococcal vaccine Pneumovax 23 also did well, with sales up 27%. And MMR/varicella vaccines produced revenue of nearly $500 million. Lastly, sales of Merck’s Animal Health division had sales of $865 million, up 5% from the year-ago Q3.
Outside of Keytruda and the vaccine segment, product sales were weak. Zetia/Vytorin sales were flat. Zetia goes off patent at the end of the year, putting more pressure on Keytruda to keep obtaining more indications. Sales for Zetia/Vytorin were $944 million in Q3. Remicade, hurt by generic competiton in Europe, sales were $311 million, down 30% year-over-year. Revenue for diabetes drug Januvia (Janumet in overseas markets), still a large product for Merck, fell by 1 percent to $1.6 billion, roughly in line with expectations. Unfortunately, Merck still depends quite heavily on Januvia. The DPP-4 inhibitor for diabetes type 2 is facing new competition in the horizon from SGLT-2 inhibitors from the likes of Eli Lilly (NYSE:ELY) and Johnson & Johnson (NYSE:JNJ). SGLT-2 inhibitors work in the kidneys by blocking glucose absorption. But Merck is working with Pfizer (NYSE:PFE) on ertugliflozin, a SGLT2 inhibitor of its own. The drug has shown good results. Merck and Pfizer plan to file new applications to the FDA for ertugliflozin and two fixed-dose combinations (ertugliflozin plus Januvia (sitagliptin) and ertugliflozin plus metformin by the end of 2016. They plan to follow up with overseas submissions 2017. This could help Merck stave off future competition for Januvia if ertugliflozin can compete with other SGLT2 products. Especially if they can combine ertugliflozin with Januvia as data has suggested. One of the newer drugs in Merck’s arsenal is Bridion. Bridion, or sugammadex, is utilized for the reversal of neuromuscular blockade induced by rocuronium bromide and vecuronium bromide in adults undergoing surgery. Last December, the FDA approved Bridion, which offers anesthesiologists a new option with a different mechanism of action to reverse neuromuscular blockade. The drug had worldwide sales of $139 million for Q3 that were driven by the launch in the United States and elevated sales in Europe. Zepatier, a drug for the treatment of chronic hepatitis C virus genotypes 1 or 4 is also a fast growing new product. Zepatier generated sales of $164 in the third quarter versus $112 million in the June period. Analysts project Zepatier could deliver nearly $2 billion in annual sales within five years.
On the pipeline front, Merck has more than 10 new pharmaceutical products in phase III testing. Its primary pipeline drugs are anacetrapib, a CETP inhibitor to lower cholesterol, and verubecestat, for Alzheimers. Zinplava is also a new launch for Merck. It was just approved by the FDA in October and will be available in Q1 2017. Zinplava is indicated for reducing recurrence of Clostridium difficileinfection (NYSE:CDI).
Based on its impressive product Keytruda and new indications, its strong vaccine division, new Januvia/ertugliflozin combination, positive earnings & revenue guidance, low forward P/E ratio, and high dividend, Merck is a stellar investment choice in the pharma sector. It qualifies as a member of our Top 100 Dividend Stocks. If you want to find out if a stock is in our model portfolio please subscribe to our monthly newsletter.
Merck & Co., Inc. Dividend Yield Chart (Click to enlarge)
Chart Explanation: Dividend growth stocks may be viewed favorably when the current yield is above historical readings for the past 5 years.