Opportunities:
- Pipeline: Merck’s pipeline includes 15 drugs in phase clinical trials 2, 17 drugs in phase 3, and 3 in regulatory phases, with several possible blockbuster drugs coming up. This strong pipeline presents incredible opportunity for the company to grow into the future
- Dividend Growth: Since implementing their dividend program in 1935, Merck has consistently raised their dividend payouts and should continue to do so into the future
- Results from R&D Spending: In 2012, the company poured over $8 billion into research and development spending, and any innovations, drugs, or technologies that result from this investment could provide opportunities and spark growth
- Acquisitions: In May 2011, Merck acquired Inspire Pharmaceuticals Incorporated, and further acquisitions in the future could introduce new technologies and treatments to the company and present incredible opportunity
- MK-0524A: This particular drug candidate which has the ability to lower LDL cholesterol, if approved is projected to generate $3-$4 billion in revenue by 2020 if the drug meets all requirements for approval, presenting major potential
Threats:
- Expiration of Patents: On Aug. 13, 2012, Merck lost its patent rights to the blockbuster drug Singulair, and further patent expirations could severely hurt the company and pose a major threat to revenue growth
- Legal Issues: Merck is no stranger to legal problems with users of its products, and while these lawsuits are traditionally on a small scale, they still could cut into profits
Competitors:
Major publicly traded competitors of Merck include Pfizer Inc. (NYSE:PFE), Bristol Myers Squibb Co. (NYSE:BMY), Sanofi SA (ADR) (NYSE:SNY), and Johnson & Johnson (NYSE:JNJ). All of these companies operate in the same industry as Merck and (NYSE:MRK) compete directly with the company. Pfizer is valued at $200.92 billion, pays out a dividend yielding 3.52%, and carries a price to earnings ratio of 21.66. Bristol-Myers is valued at $60.38 billion, pays out a dividend yielding 3.83%, and carries a price to earnings ratio of 31.72. Sanofi is valued at $126.95 billion, pays out a dividend yielding 3.88%, and carries a price to earnings ratio of 15.89. Johnson & Johnson is valued at $211.06 billion, pays out a dividend yielding 3.20%, and carries a price to earnings ratio of 19.67.
The Foolish Bottom Line:
Financially, Merck is extremely solid. The company possesses historic revenue growth, a positive free cash flow, and a net cash position. The only major weaknesses of the company are its high valuation and trend of margin contraction. Looking forward, Merck has strategically invested in its company and possesses a strong pipeline. All in all, while revenues are projected to be flat in the coming years, and the company will not offer explosive growth to investors, Merck is a steady and solid investment with a growing dividend that should hand investors returns in line with the overall market.
The article A Global Health Care Giant Doling Out a Massive Dividend originally appeared on Fool.com and is written by Ryan Guenette.
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