Novice Investing - Your Merck Portfolio Under Review

Date: Sunday 20th 2008f July 2008 12:53:37 PM

Your Merck Portfolio Under Review - 7/26/2006

By: Novice Investing Staff

One of the stock in our sample portfolio, Merck Co & Inc. (MRK) reported a decent 2006 second quarter earning just recently. We last review Merck's earning potential back on October 2005. At the time, we made our prediction for Merck's fiscal year 2006. Let's compare how we do against what Merck reported for its second quarter earning. We assume that Merck's full year earning will be identical to the earning figure reported on the second quarter. Thus, if Merck sales is $ 1 Billion for the second quarter, we assume that Merck will report a full year sales figure of $ 4 Billion. An exception applies to Merck's Zocor, which lost patent protection in June 2006. In this case, the second half sales will be grimmer than the first half.


Revenue	Fiscal 2005	Fiscal 2006 predicted last year	Fiscal 2006 predicted this year
Zocor	$ 4,700 M	$ 4,000 M	$ 2,600 M
Fosamax	$ 3,600 M	$ 3,960 M	$ 3,960 M*
Cozaar/Hyzaar	$ 3,200 M	$ 3,520 M	$ 3,520 M*
Singulair	$ 3,200 M	$ 3,840 M	$ 3,800 M
Zetia	$ 960 M	$ 1,440 M	$ 1,984 M
Vytorin	$ 325 M	$ 569 M	$ 1,988 M
Prilosec & Nexium	$ 800 M	$ 840 M	$ 840 M*
Gardasil	-	$ 500 M	$ 500 M*
Murglitazar	-	-	-
Vioxx	$ 0 M	-	-
Others	$ 6,000 M	$ 6,450 M	$ 6,450 M*
TOTAL	$22,785 M	$25,119 M	$25,642 M
* No data available. Using the same prediction as last year.

As you can see from this exercise, our revenue estimate for Merck remains the same as last October. So far so good it seems. Therefore, using the same assumptions last year, Merck is on track to book a profit of $ 2.99 this year.

What else has changed since then? Merck has accumulated decent profit while its profit estimate is expected to remain the same. Fair value for MRK is when it hits a P/E of 14.3. Our 'P' here is not merely stock price. It is real price paid to Merck's business. With a P/E of 14.3 and estimated EPS of $ 2.99, Merck's real price = $ 42.76. Now, let's calculate Merck's stock price at fair value, currently.

Real price = stock price - (cash+ short-term investment) + long-term debt.

Stock price = $ 42.76+ $ 7.10 - $ 2.18 = $ 47.68.

This is the fair value of Merck's stock, about 19% above where it is trading right now.

END

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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Merck Co & Inc.(MRK) or other securities.

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