Critical Review: Merck & Co., Inc. (NYSE:MRK) and Johnson & Johnson (NYSE:JNJ)

Merck & Co., Inc. (NYSE:MRK) and Johnson & Johnson (NYSE:JNJ) are both large-cap medical companies, but which is the better investment? We will contrast the two businesses based on the strength of their risk, analyst recommendations, profitability, dividends, valuation, institutional ownership and earnings.

Volatility and Risk

Merck & Co., Inc. has a beta of 0.38, meaning that its share price is 62% less volatile than the S&P 500. Comparatively, Johnson & Johnson has a beta of 0.41, meaning that its share price is 59% less volatile than the S&P 500.

Valuation & Earnings

This table compares Merck & Co., Inc. and Johnson & Johnson”s top-line revenue, earnings per share (EPS) and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Merck & Co., Inc.	$64.17 billion	3.14	$17.12 billion	$6.49	12.44
Johnson & Johnson	$88.82 billion	4.70	$14.07 billion	$9.35	18.55

Merck & Co., Inc. has higher earnings, but lower revenue than Johnson & Johnson. Merck & Co., Inc. is trading at a lower price-to-earnings ratio than Johnson & Johnson, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Merck & Co., Inc. and Johnson & Johnson’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Merck & Co., Inc.	25.79%	41.05%	16.55%
Johnson & Johnson	25.00%	32.49%	13.00%

Dividends

Merck & Co., Inc. pays an annual dividend of $3.24 per share and has a dividend yield of 4.0%. Johnson & Johnson pays an annual dividend of $5.20 per share and has a dividend yield of 3.0%. Merck & Co., Inc. pays out 49.9% of its earnings in the form of a dividend. Johnson & Johnson pays out 55.6% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Merck & Co., Inc. has raised its dividend for 14 consecutive years and Johnson & Johnson has raised its dividend for 64 consecutive years. Merck & Co., Inc. is clearly the better dividend stock, given its higher yield and lower payout ratio.

Insider and Institutional Ownership

76.1% of Merck & Co., Inc. shares are held by institutional investors. Comparatively, 69.6% of Johnson & Johnson shares are held by institutional investors. 0.1% of Merck & Co., Inc. shares are held by insiders. Comparatively, 0.2% of Johnson & Johnson shares are held by insiders. Strong institutional ownership is an indication that hedge funds, endowments and large money managers believe a stock will outperform the market over the long term.

Analyst Recommendations

This is a summary of recent recommendations and price targets for Merck & Co., Inc. and Johnson & Johnson, as reported by MarketBeat.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Merck & Co., Inc.	1	12	6	1	2.35
Johnson & Johnson	0	9	9	2	2.65

Merck & Co., Inc. presently has a consensus target price of $107.4375, indicating a potential upside of 33.08%. Johnson & Johnson has a consensus target price of $174.50, indicating a potential upside of 0.63%. Given Merck & Co., Inc.’s higher probable upside, analysts clearly believe Merck & Co., Inc. is more favorable than Johnson & Johnson.

Summary

Johnson & Johnson beats Merck & Co., Inc. on 10 of the 18 factors compared between the two stocks.

About Merck & Co., Inc.

Merck & Co., Inc. is a health care company, which engages in the provision of health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer care products. It operates through the following segments: Pharmaceutical, Animal Health, and Other. The Pharmaceutical segment includes human health pharmaceutical and vaccine products. The Animal Health segment discovers, develops, manufactures, and markets animal health products, such as pharmaceutical and vaccine products, for the prevention, treatment and control of disease in livestock, and companion animal species. The Other segment consists of sales for the non-reportable segments of healthcare services. The company was founded in 1891 and is headquartered in Rahway, NJ.

About Johnson & Johnson

Johnson & Johnson is a holding company, which engages in the research, development, manufacture, and sale of products in the healthcare field. It operates through the Innovative Medicine and MedTech segments. The Innovative Medicine segment focuses on immunology, infectious diseases, neuroscience, oncology, cardiovascular and metabolism, and pulmonary hypertension. The MedTech segment includes a portfolio of products used in the interventional solutions, orthopaedics, surgery, and vision categories. The company was founded by Robert Wood Johnson I, James Wood Johnson, and Edward Mead Johnson Sr. in 1887 and is headquartered in New Brunswick, NJ.