CHAPTER 6
EQUITY SECURITIES ANALYSIS CASE STUDY: MERCK & COMPANYa
It is one thing to know what all the tools of oil painting are and quite another to use those tools to create a finished oil painting. The same is true in valuation. It is one thing to know what the components of a thorough valuation analysis are and quite another to apply that knowledge to calculate the value of an asset. This thorough case study contains important information about how to apply valuation knowledge (valuation as science) to a real-world company, Merck, to create a valuation conclusion (valuation as art).
Bill Kurious, a junior analyst with Grand Concepts Investment Management and a CFA candidate, has been assigned the task of valuing the common stock of Merck & Company. Merck, the world’s largest ethical drug manufacturer, discovers, develops, produces, and markets human and animal health products and specialty chemicals. The company has been consistently ranked among the top companies in return on assets and return on sales in Fortune magazine’s analysis of the 500 largest companies in the United States. It also is considered one of the “most admired” companies in the United States.
Kurious wishes to impress his supervisor, Amy Randall, but is mindful of the high expectations for his performance and the fact that this is his first “real” valuation report. Randall requested that the analysis consider a variety of valuation approaches and that all assumptions be identified ...
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