Merck MRK FAIRLY VALUED Buying Index™ 6 Value Rating

Valuentum Retail Equity Research Ratings as of 10-Jul-2021 Data as of 9-Jul-2021

Buying Index™ 6 Value RatingEconomic Castle

Attractive

Investment ConsiderationsDCF ValuationRelative Valuation

Stock Chart (weekly) ValueCreation™ValueRisk™ValueTrend™Cash Flow GenerationFinancial LeverageGrowthTechnical EvaluationRelative StrengthMoney Flow Index (MFI)Upside/Downside Volume (U/D)Near-term Technical Support, 10-week MADCF = Discounted Cash Flow; MFI, U/D = Please see glossary. MA = Moving Average

Business Quality ValueCreation™

ValueRisk™ Very Poor Poor Good ExcellentCompany Vitals Investment HighlightsMarket Cap (USD) $198,325Avg Weekly Vol (30 wks) 55,77530-week Range (USD) 68.44 - 81.68Valuentum Sector Health Care5-week Return 3.0%13-week Return 5.3%30-week Return 3.8%Dividend Yield % 3.3% Firms that generate economic profits with little operating variability score near the top right of the matrix.

Dividends per Share 2.60 Relative Valuation Forward P/E PEG Price / FV

Forward Dividend Payout Ratio 41.5% Johnson & Johnson 17.7 1.6 98.8%Est. Normal Diluted EPS 6.16 Medtronic 22.4 1.8 99.4%P/E on Est. Normal Diluted EPS 12.7 Pfizer 10.6 1.4 104.3%Est. Normal EBITDA 23,358 Walgreens Boots Alliance 10.0 1.5 112.7%Forward EV/EBITDA 9.3 Peer Median 14.1 1.6 101.9%EV/Est. Normal EBITDA 9.5 Merck 12.4 1.9 91.8%Forward Revenue Growth (5-yr) 2.4% Price / FV = Current Stock Price divided by Estimated Fair Value

Forward EPS Growth (5-yr) 14.7% Financial Summary ProjectedNMF = Not Meaningful; Est. = Estimated; FY = Fiscal Year

Fiscal Year End: Dec-19 Dec-20 Dec-21

Returns Summary 3-year Historical Average Revenue 46,840 47,994 48,570Return on Equity 28.4% Revenue, YoY% 10.7% 2.5% 1.2%Return on Assets 9.0% Non-GAAP Operating Income 12,241 8,483 20,329ROIC, with goodwill 23.3% Non-GAAP EBIT % 26.1% 17.7% 41.9%ROIC, without goodwill 39.7% Non-GAAP Net Income 9,843 7,067 15,778ROIC = Return on Invested Capital; NMF = Not Meaningful Non-GAAP NI Margin % 21.0% 14.7% 32.5%Leverage, Coverage, and Liquidity Non-GAAP Diluted EPS 3.82 2.78 6.27In Millions of USD Non-GAAP Dil EPS, YoY % 64.3% -27.1% 125.5%Total Debt 31,791 Non-GAAP Free Cash Flow 9,967 5,569 7,919Net Debt 23,729 Non-GAAP FCF Margin % 21.3% 11.6% 16.3%Total Debt/EBITDA 2.6 In Millions of USD (except for per share items)

Net Debt/EBITDA 2.0 LARGE-CEBITDA/Interest 14.6 GOODCurrent Ratio 1.0Quick Ratio 0.6

Industry $85.00 $68.00 - $102.00 LARGE-CAP VALUE Health Care Health Care Bellwethers

Visit us at www.valuentum.com

Merck MRK FAIRLY VALUED Estimated Fair Value Fair Value Range Investment Style Sector

EXCELLENTLOW

NEGATIVESTRONGMEDIUMMODEST

Merck announced it is acquiring LIC Automation, which focuses on automation and technology offerings for the dairy industry, in June 2021 as animal health represents a key focus going forward.

FAIRLY VALUEDNEUTRAL

BULLISHNEUTRALNEUTRALBULLISH

76.00

The week with the highest trading volume out of the last 30 weeks was a week of heavy selling, or distribution (red bar).

• Merck's KEYTRUDA is the #1 treatment foradvanced Melanoma in the US, and the firm continuesto seek new regulatory approvals for KEYTRUDA inthe realm of oncology. Sales of this treatment has anoutsized impact on Merck's financial performance.

• In March 2021, Merck submitted an NDA to the USFDA covering gefapixant, which seeks to treatrefractory chronic cough in adult patients. In April2021, Merck completed its ~$1.85 billion acquisitionof Pandion Therapeutics, growing its drug pipeline inthe realm of autoimmune diseases. Animal healthofferings represent another key focus.

----- Actual -----

• From 2017 to 2020, annual sales of Merck'sKeytruda oncology offering rose from ~$3.8 billion to~$14.4 billion. The patents that cover Keytruda in theUS, EU, Japan, and China do not expire until 2028 atthe earliest, indicate Keytruda will remain a majorrevenue generator for the time being.

Medium

High

Low 1• Merck is a global health care company that deliversinnovative health solutions through its prescriptionmedicines, vaccines, and biologic therapies.Januvia/Janumet for type 2 diabetes and Keytruda foradvanced Melanoma are its two largest revenue drivers within its pharma business. The company was foundedin 1891 and is headquartered in New Jersey. Very High

• Merck completed the spinoff of Organon, home to itswomen's health, legacy brands and biosimilarbusinesses, in June 2021 and received ~$9.0 billion incash from the move. Within three years, Merck aimsto unlock ~$1.5 billion in operational efficiencies.

NMF = Not Meaningful

The information and data contained in this report is not represented or warranted to be timely, complete, accurate, or correct. This report is for informational purposes only and should not be considered a solicitation to buy or sell a security. Before acting on any information in this report, you should consider whether the information is suitable for your particular circumstances and, if necessary, seek professional advice. Assumptions, opinions, and estimates are based on our judgment as of the date of the report and are subject to change without notice. Valuentum is not responsible for any errors or omissions or for results obtained from the use of this report. Redistribution is prohibited without written permission. To license Valuentum research, contact us at [email protected].

Structure of the Big Pharma IndustryThe big pharma industry is primarily composed of makers of branded drugs. Intellectual property protection is vital to the successful commercialization of medicines and offers makers of branded drugs a unique competitive advantage via patents, which can extend for decades. When branded drugs lose market exclusivity, however, makers of generic pharmaceuticals can generate intense price competition, causing drastic revenue losses on unprotected therapies. Long-term success for branded pharma companies depends on a strong and diverse drug pipeline, which can be augmented by M&A activity. We generally like the group and expect continued industry consolidation.

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Attractive

Economic Profit Analysis

ValueCreation™ EXCELLENT Return on Invested Capital (ROIC)

ROIC - WACC Spread, 3-year historical average 30.6%ROIC - WACC Spread, 5-year projected average 32.7%These spreads equal the firm's annual average ROIC (excluding goodwill) less its WACC.

ValueTrend™ NEGATIVE

Weighted Average Cost of Capital (WACC) The graph above shows the firm's ROIC (excluding goodwill) compared with historical averages and its WACC.

ROIC CalculationFiscal Year End: Dec-18 Dec-19 Dec-20

Earnings before InterestOperating Income after Depreciation 8,931 12,241 8,483- Adjusted Taxes (at 19% of EBIT) 1,697 2,326 1,612+ Amortization 3,103 1,973 1,899+ Non-cash Operating Items 1,445 11 -454- Minority Interest -27 -66 15Earnings before Interest 11,809 11,965 8,301

Cost of Equity Invested CapitalRisk Free Rate Assumption Inventories 5,440 5,978 6,310Fundamental Beta (ERP multiplier) + Receivables 7,071 6,778 7,851Estimated Equity Risk Premium + Current Deferred Income Taxes 0 0 0Cost of Equity Assumption + Other Current Assets 4,500 4,277 5,541

+ Property, Plant and Equipment, Net 13,291 15,053 17,986After-tax Cost of Debt + Goodwill, Net (Cost in Excess) 18,253 19,425 20,238Risk Free Rate Assumption + Intangibles 11,431 14,196 14,604Synthetic Credit Spread + Non Current Deferred Income Taxes 0 0 0Cost of Debt Assumption - Accounts Payable 3,318 6,061 7,843Cash Tax Rate Assumption - Other Current Liabilities 13,580 12,549 13,053After-tax Cost of Debt Assumption

Invested Capital, with goodwill 43,088 47,097 51,634Cost of Preferred Stock Invested Capital, without goodwill 24,835 27,672 31,396Preferred DividendsValue of Preferred Stock Return on Invested Capital, with goodwill 26.6% 26.5% 16.8%Cost of Preferred Assumption Return on Invested Capital, without goodwill 45.3% 45.6% 28.1%

In Millions of USD

Weighted Average Cost of Capital (WACC)ERP = Equity Risk Premium

Merck MRK FAIRLY VALUED Estimated Fair Value Fair Value Range Investment Style Sector Industry

Merck receives a ValueTrend™ rating of NEGATIVE, which is based on thecompany's trailing three-year performance. The firm's ROIC (excluding goodwill) fellto 28.1% last year from its trailing 3-year average of 39.7%. We expect ROIC(excluding goodwill) to be in the ballpark of about 47% by the end of our discreteforecast period, with downside risk to about 24% over that time period.

---------- Actual ----------

4.3%

$85.00 $68.00 - $102.00 LARGE-CAP VALUE Health Care Health Care Bellwethers

The best measure of a firm's ability to create value for shareholders is expressed bycomparing its return on invested capital (ROIC) with its weighted average cost ofcapital (WACC). The gap or difference between ROIC and WACC is called the firm'seconomic profit spread. Merck's 3-year historical return on invested capital (withoutgoodwill) is 39.7%, which is above the estimate of its cost of capital of 9%. As such,we assign the firm a ValueCreation™ rating of EXCELLENT. In the chart to the right,we show the probable path of ROIC in the years ahead based on the estimated volatilityof key drivers behind the measure. The solid grey line reflects the most likely outcome,in our opinion, and represents the scenario that results in our fair value estimate.

19.0%5.9%

00

NA

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0.86.5%9.5%

4.3%3.00%

7.3%


Note: Valuentum may provide an adjusted ROIC measure to better reflect the economic substance of a company's operations, as in the case of companies with negative invested capital.

69.8%

47.2%45.3% 45.6%

28.1%24.5%

WACC, 9.0%

0.0%

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80.0%

86.2%

13.8%Equity

Debt

Preferred

Capital Structure



Attractive

Growth Analysis

Revenue Growth MODEST Projected Revenue (in millions of USD) Source: Company Filings, Valuentum Projections

Last Fiscal Year

Revenue3-year Historical

CAGR5-year Projected

CAGRMerck USD 47,994 6.2% 2.4%

Johnson & Johnson USD 82,584 2.6% 6.5%

Medtronic USD 30,117 0.2% 6.0%

Pfizer USD 41,908 -7.3% 10.1%

Walgreens Boots Alliance USD 139,537 5.7% 1.3%

Peer Median 1.4% 6.2%

Industry Median 5.3% 6.2%

In the chart above, we show our baseline forecast for revenue as well as potential upside and downside cases.

EBITDA Growth Projected EBITDA (in millions of USD) Source: Company Filings, Valuentum Projections

Last Fiscal Year

EBITDA3-year Historical

CAGR5-year Projected

CAGRMerck USD 12,108 0.5% 11.8%


Medtronic USD 7,912 -5.8% 16.7%

Pfizer USD 10,101 -13.7% 18.7%

Walgreens Boots Alliance USD 2,898 -25.7% 24.8%

Peer Median -9.8% 17.7%


In the chart above, we show our baseline forecast for EBITDA as well as potential upside and downside cases.

Net Income Growth Projected Net Income (in millions of USD) Source: Company Filings, Valuentum Projections

Last Fiscal Year Net Income

3-year Historical CAGR

5-year Projected CAGR

Merck USD 7,067 43.5% 13.5%


Medtronic USD 3,606 5.1% 25.4%

Pfizer USD 6,985 -23.3% 14.5%

Walgreens Boots Alliance USD 456 -51.8% 48.7%



In the chart above, we show our baseline forecast for net income as well as potential upside and downside cases.


Merck's revenue expansion has been greater than the median of both its peer group andindustry group during the past three years. We expect the firm's pace of revenue growthto fall below the median of both its peer group and industry group during the next fiveyears. Our growth assessment of each firm is based on the firm's 5-year forwardrevenue CAGR. Merck's future pace of revenue growth is MODEST, in our opinion.


Merck's EBITDA expansion has been greater than that of its peer group but has trailedthat of its industry group during the past three years. We expect the firm's pace ofEBITDA growth to fall below that of both its peer group and industry group during thenext five years. Walgreens Boots Alliance sports the highest EBITDA growth rateamong peers.

Merck's net income expansion has been greater than that of both its peer group andindustry group during the past three years. We expect the firm's pace of net incomegrowth to fall below that of both its peer group and industry group during the next fiveyears. Walgreens Boots Alliance sports the highest net income growth rate amongpeers.


42,29446,840 47,994

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Attractive

Cash Flow and Financial Leverage AnalysisCash Flow Generation STRONG Financial Leverage MEDIUM

The bars above show the firms operating cash flow, capital expenditures, and free cash flow, respectively. The bars above show the firm's annual debt-to-EBITDA. The red line shows the firm's normalized measure.

Cash Flow from Operations Projected Operating Cash Flow (in millions of USD) Source: Company Filings, Valuentum Projections

Last Fiscal Year CFO


5-year Projected CAGR

Merck USD 10,253 16.7% 16.4%


Medtronic USD 6,240 10.0% 22.4%

Pfizer USD 14,403 -4.4% 9.9%

Walgreens Boots Alliance USD 5,484 -8.9% -0.6%



In the chart above, we show our baseline forecast for CFO as well as potential upside and downside cases.

Free Cash Flow (CFO-capital expenditures) Projected Free Cash Flow (in millions of USD) Source: Company Filings, Valuentum Projections

Last Fiscal Year FCF


5-year Projected CAGR Source: Company Filings, Valuentum Projections

Merck USD 5,569 6.9% 23.7%


Medtronic USD 4,885 10.5% 26.1%

Pfizer USD 11,612 -6.6% 11.4%

Walgreens Boots Alliance USD 4,110 -11.4% -4.5%



In the chart above, we show our baseline forecast for free cash flow as well as potential upside and downside cases.


Firms that generate a free cash flow margin (free cash flow divided by total revenue)above 5% are usually considered cash cows. Merck's free cash flow margin hasaveraged about 17.5% during the past 3 years. As such, we think the firm's cash flowgeneration is relatively STRONG. The free cash flow measure shown above is derivedby taking cash flow from operations less capital expenditures and differs fromenterprise free cash flow (FCFF), which we use in deriving our fair value estimate forthe company. For more information on the differences between these two measures,please visit our website at Valuentum.com. At Merck, cash flow from operationsdecreased about 6% from levels registered two years ago, while capital expendituresexpanded about 79% over the same time period.

Firms that exhibit high leverage tend to be more risky than firms with relatively lowdebt loads, all else equal. We measure financial leverage by taking a firm's currenttotal debt load and dividing it by the firm's trailing average 3-year annual EBITDA.Firms that are over 3 for this metric, we rate as having high leverage. Companies thathave less than 1.5 turns of leverage (or a measure below 1.5), we rate as having lowleverage. Merck's normalized debt-to-EBITDA measure of about 2.3 puts it in theMEDIUM camp.


Merck's cash flow from operations expansion has been greater than that of both its peergroup and industry group during the past three years. We expect the firm's cash flowfrom operations expansion to outpace its peer group and industry group during the nextfive years. Medtronic sports the highest expected cash flow from operations growth rateamong peers.

Merck's free cash flow expansion has been greater than that of its peer group but hastrailed that of its industry group during the past three years. We expect the firm's freecash flow expansion to outpace its peer group and industry group during the next fiveyears. Medtronic sports the highest expected free cash flow growth rate among peers.


10,922

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2,6153,473

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Dec-18 Dec-19 Dec-20

Cash from Operations Capital Expenditures Free Cash FlowMerck - normalized

leverage, 2.30

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Merck- annual leverage Merck - normalized leverageMedium Threshold HighThreshold

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Attractive

Valuation Analysis

Valuation Assumptions Valuation BreakdownIn Millions of USD (except for per share items)

Revenue CAGR %Avg. EBIT Margin %Avg. Cash Tax Rate %Earnings Before Interest CAGR %Earnings Per Share CAGR %Free Cash Flow to the Firm CAGR %Earnings before interest = Net operating profits less adjusted taxes

Phase II --> III FCFF CAGR % 3.3% (II) 3% (III)Cost of Equity %After-tax Cost of Debt %Discount Rate (WACC) %Synthetic credit spread = 3%

Phase I Present ValuePhase II Present ValuePhase III Present ValueTotal Firm Value

Net Balance Sheet Impact

Total Equity ValueDiluted Shares OutstandingFair Value per Share

DCF Valuation Summary Enterprise Free Cash FlowFiscal Year End: 12/31/2018 12/31/2019 12/31/2020

11,809 11,965 8,3011,416 1,679 1,7262,615 3,473 4,684

602 7,653 -377 - Acquisitions 431 294 1,365

9,577 2,224 4,355In Millions of USD

Source: Company Filings, Valuentum Projections

Company NameValuentum Buying

Index™Forward Price-to-

Earnings

Price/Earnings-to-Growth (PEG), 5-

yearEV/Est. Normal

EBITDA

5-year Forward Earnings per Share CAGR

3-year Hist Avg ROIC, without

goodwillDividend Yield

%

Stock Price / Fair Value Estimate

Merck 6 12.4 1.9 9.5 14.7% 39.7% 3.3% 91.8%

Johnson & Johnson 6 17.7 1.6 10.8 19.1% 33.7% 2.5% 98.8%

Medtronic 6 22.4 1.8 12.7 26.7% 20.7% 2.0% 99.4%

Pfizer 7 10.6 1.4 10.5 22.9% 23.4% 3.9% 104.3%

Walgreens Boots Alliance 4 10.0 1.5 6.0 59.1% 13.4% 3.9% 112.7%

Peer Median 6.0 14.1 1.6 10.7 24.8% 22.1% 3.2% 101.9%

Industry Median 6.0 19.0 2.3 11.9 18.8% 35.5% 1.4% 105.0%



5-year Projections In the chart below, we show the build up to our estimate of total enterprise value forMerck and the break down to the firm's total equity value, which we estimate to beabout 215.5USD billion. The present value of the enterprise free cash flows generatedduring each phase of our model and the net balance sheet impact, which considersthe firm's pension, is displayed. We divide total equity value by diluted sharesoutstanding to arrive at our $85 per share fair value estimate.

2.4%38.6%19.0%

9.0%Results48,063

19.7%14.7%30.9%

Long-term Projections

9.5%5.9%

-25,002

215,5002,541.0$85.00

109,21483,225

240,502

Company Metrics versus Peer and Industry Medians

P/E on Est. Normal Diluted EPS Forward EV/EBITDA

12.7 9.3

In addition to the firm's cap structure, the net balance sheet impact considers the funded status of the firm's pension (-1273). In Millions of USD

---------- Actual ----------

We think Merck is worth $85 per share with a fair value range of $68.00 - $102.00.The margin of safety around our fair value estimate is driven by the firm's LOWValueRisk™ rating, which is derived from an evaluation of the historical volatility ofkey valuation drivers and a future assessment of them. Our near-term operatingforecasts, including revenue and earnings, do not differ much from consensus estimatesor management guidance. Our model reflects a compound annual revenue growth rateof 2.4% during the next five years, a pace that is lower than the firm's 3-year historicalcompound annual growth rate of 6.2%. Our model reflects a 5-year projected averageoperating margin of 38.6%, which is above Merck's trailing 3-year average. Beyondyear 5, we assume free cash flow will grow at an annual rate of 3.3% for the next 15years and 3% in perpetuity. For Merck, we use a 9% weighted average cost of capital todiscount future free cash flows.

Earnings before Interest+ Depreciation - Capital Expenditures - Change in Working Capital

Enterprise Free Cash Flow (FCFF)

Our future forecasts for key valuation drivers result in a future free enterprise cashflow stream. Above, we show how we calculate enterprise free cash flow and thehistorical performance of the metric for Merck. Over the next five years, we expectthe firm's enterprise free cash flow to expand at about a 31% compound annualgrowth rate. During years 6 through 20, we expect the measure to grow at a 3.3%rate. Beyond year 20 (in perpetuity), we grow the firm's free cash flow at inflation(3%).

9.2 5.9

13.2 11.0

16.7 13.4

14.9 12.3

18.0 14.8

11.5 9.6

View back of report for a full list of industry constituents covered by Valuentum. VBI: Valuentum's ranking for the attractiveness of this investment at the date of the report.


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Equity Value



Attractive

Margin of Safety Analysis

Range of Potential Outcomes ValueRisk™ LOW

Revenue Volatility 7.8%Gross Margin Volatility 8.3%Earnings (EBI) Volatility 38.5%Cash Flow (FCFF) Volatility Greater than 50%Fair Value Range 20.0%The Fair Value Range sets the premium or discount on our estimate of the firm's fair value.

Upside and Downside ProbabilitiesProbability (fair value < $0) Less than 0.1%Probability (fair value > 2x current share price) 0.00%

Future Path of Fair Value

The graph above shows the expected future fair value of the firm's shares relative to its current stock price.


Our discounted cash flow process values each firm on the basis of the present value ofall future free cash flows. Although we estimate the firm's fair value at about $85 pershare, every company has a range of probable fair values that's created by theuncertainty of key valuation drivers (like future revenue or earnings, for example). After all, if the future were known with certainty, we wouldn't see much volatility in themarkets as stocks would trade precisely at their known fair values. Our ValueRisk™rating sets the margin of safety or the fair value range we assign to each stock. In thegraph above, we show this probable range of fair values for Merck. We think the firm isattractive below $68 per share (the green line), but quite expensive above $102 pershare (the red line). The prices that fall along the yellow line, which includes our fairvalue estimate, represent a reasonable valuation for the firm, in our opinion.

We strive to answer a few questions that investors often ask: 1) What are the chancesof a total loss of investment in this company? and 2) What is the chance that thecompany is really worth twice what I paid for it? The probability (fair value < 0)strives to answer the first question. It indicates the chance that the firm mayencounter insolvency based on the characteristics of its cash flow stream, capitalstructure, and risk profile. The probability (fair value > 2x current share price) strivesto answer the second question. It is our best estimate of whether investors areparticipating in a half-off sale by buying the company's shares at current prices.

We estimate Merck's fair value at this point in time to be about $85 per share. As timepasses, however, companies generate cash flow and pay out cash to shareholders in theform of dividends. The chart to the right compares the firm's current share price withthe path of Merck's expected equity value per share over the next three years, assumingour long-term projections prove accurate. The range between the resulting downsidefair value and upside fair value in Year 3 represents our best estimate of the value of thefirm's shares three years hence. This range of potential outcomes is also subject tochange over time, should our views on the firm's future cash flow potential change. Theexpected fair value of $102 per share in Year 3 represents our existing fair value pershare of $85 increased at an annual rate of the firm's cost of equity less its dividendyield. The upside and downside ranges are derived in the same way, but from the upperand lower bounds of our fair value estimate range.



Merck receives a ValueRisk™ rating of LOW based of the historical volatility of keydrivers of economic value creation. The fair value range sets the margin of safetyaround our fair value estimate of the firm's shares.

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Attractive

Technical Analysis

Technical Evaluation BULLISH Money Flow Index (MFI) NEUTRAL

30-week Price and Volume Chart (weekly)Relative Price Strength NEUTRAL

5-week Company Performance 3.0%5-week Market Benchmark Performance 2.6%5-week Relative Performance vs. Market Benchmark 0.4%13-week Company Performance 5.3%13-week Market Benchmark Performance 7.5%13-week Relative Performance vs. Market Benchmark -2.2%30-week Company Performance 3.8%30-week Market Benchmark Performance 17.5%30-week Relative Performance vs. Market Benchmark -13.7%

Upside/Downside Volume BULLISH Timeliness Matrix™ Equity Valuation

Relative Strength

Firms that are undervalued and currently showing near-term pricing strength score near the top right of the matrix.

Merck MRK FAIRLY VALUED

The firm's near-term moving average (5-week, grey line) and medium-term movingaverage (13-week, red line) are shown in the chart above. Typically, when a shorter-term moving average crosses a medium- or longer-term moving average from below, itrepresents a bullish signal. If the short-term moving average crosses from above, tradersoften view this as bearish. Merck's 5-week moving average resides above its 13-weekmeasure, indicating a BULLISH trend. We'd grow wary of the firm's technicals shouldits 5-week moving average drop below its 13-week moving average.

The Money Flow Index (MFI) is an oscillator that uses price and volume to measurebuying and selling pressure. Chartists often look for overbought (above 80) andoversold (below 20) levels to warn of unsustainable near-term price extremes.Merck's MFI of 72 is neutral, suggesting the firm's stock is neither overbought noroversold at this time. However, a score over 50 tends to favor bulls. The MFI can alsobe used to gauge the strength or weakness of a firm's price trend. In Merck's case, itsstock price and money flow neither reveals a bullish nor bearish divergence, furthersupporting our neutral view on its money flow action.

A firm's relative price strength can be assessed over any number of time horizons. Weshow the firm's performance over the past 5 weeks, 13 weeks, and 30 weeks below.In arriving at our relative strength rating for each company, we assess the past 13weeks, which includes the market's reaction to the firm's most recently reportedquarter, where applicable, and other more recent economic events. During the past 13weeks, Merck's shares returned 5.3%, while the market benchmark returned 7.5%.We think Merck's 13-week relative price performance is NEUTRAL.

In the chart above, we pinpoint the heaviest accumulation or distribution week of thefirm, determined by the week with the highest trading volume during the past 30 weeks.A heavy accumulation (buying) or distribution (selling) week often determines thefuture near-term direction of the firm's share price, as money managers continue tomove in or out of the stock in the days and weeks ahead driving the stock up or down,respectively. For Merck, the week with the highest trading volume out of the last 30weeks was a week of heavy buying, or accumulation (green bar). Such market activitycould indicate a reversal of a downtrend or further confirmation of the firm's uptrend.

Overvalued Fairly Valued Undervalued

Estimated Fair Value Fair Value Range Investment Style Sector Industry $85.00 $68.00 - $102.00 LARGE-CAP VALUE Health Care Health Care Bellwethers

Weak

Companies that are undervalued and showing near-term relative price strength couldrepresent timely buys, as the stock may be attractive to both value and momentuminvestors. A cross section of the firm's equity valuation and its relative share pricestrength is shown in the matrix above. We tend to prefer undervalued stocks that have strong pricing momentum, also called Valuentum stocks.

The level and trend of the Upside/Downside (U/D) volume ratio reveals whetherinstitutional participation has been bullish or bearish as of late. Merck's U/D volumeratio of 2 is not only greater than 1 but also is better than its trailing average, indicatingBULLISH institutional interest during the past several weeks.

Strong

Neutral 1


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200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

5-week Moving Average

13-week Moving Average

Stock Price

64

69

74

79

84Overbought Line

Oversold Line

46

72

0102030405060708090

0.9

2.0

Average, 1.3

0.0

0.5

1.0

1.5

2.0

2.5

- 10-week Moving Average



Attractive

Pro Forma Income Statement -------------------- Historical --------------------

In Millions of USD (except for per share items)Dec-18 Dec-20

Total Revenue 42,294 47,994

Cost of Goods Sold 13,509 15,485

Selling, General and Administrative Expenses 10,102 10,468

Other Operating Expenses 9,752 13,558

Operating Income 8,931 8,483

Unusual items 0 0

Operating Income, including unusual items 8,931 8,483

Interest Expense (772) (831)

Other Non-operating Income 542 1,139

Pre-tax Income 8,701 8,791

Income Taxes 2,508 1,709

Income after tax 6,193 7,082

Minority Interest and Equity Income 27 (15)

Net Income, excluding extra items 6,220 7,067

Income Available to Common, excluding extra items 6,220 7,067

Diluted Earnings per Share, excluding extra items 2.32 2.78

Diluted Weighted Shares Outstanding 2,679.0 2,541.0

Source: Company Filings, Xignite, Valuentum Projections


---------- Projected ----------


46,840 48,570 49,444


9,872 9,691 9,589

14,112 11,068 10,952

10,615 7,482 7,403

0 0 0

12,241 20,329 21,500

12,241 20,329 21,500

116 0 0

(893) (831) (831)

1,687 3,705 3,927

11,464 19,498 20,669

66 (15) (15)

9,777 15,793 16,742

9,843 15,778 16,727

9,843 15,778 16,727

2,580.0 2,515.6 2,490.4


3.82 6.27 6.72

Note: Pro forma data in discounted cash-flow valuation may reflect significant adjustments from GAAP accounting data, including cash (not effective) tax rates and other analytical adjustments on a backward-looking and forward-looking basis. No individual data, by itself, found in this report should be used to make any investment decision.



Attractive

Pro Forma Balance Sheet -------------------- Historical --------------------


AssetsTotal Cash (including marketable securities) 8,864 8,062Inventory 5,440 6,310Accounts Receivable 7,071 7,851Other Current Assets 4,500 5,541Total Current Assets 25,875 27,764

Gross Fixed Assets 29,615 36,968(Accumulated Depreciation) (16,324) (18,982)Net Property, Plant, and Equipment 13,291 17,986

Goodwill, Net 18,253 20,238Intangibles, Net 11,431 14,604Other Long-term Assets 13,787 11,006Total Assets 82,637 91,598

LiabilitiesAccounts Payable 3,318 7,843Other Current Liabilities 13,580 13,053Current Portion of Long-term Debt 5,308 6,431Total Current Liabilities 22,206 27,327

Long-term Debt 19,806 25,360Other Long-term Liabilities 13,924 13,584Total Liabilities 55,936 66,271

Preferred Stock 0 0

Shareholders' EquityCommon Stock and Additional Paid in Capital 40,596 41,376Retained Earnings 42,579 47,362Other Equity (56,474) (63,421)Total Shareholders' Equity 26,701 25,317

Total Liabilities and Shareholders' Equity 82,637 91,588

Merck MRK FAIRLY VALUED

---------- Projected ----------


Estimated Fair Value Fair Value Range Investment Style Sector Industry $85.00 $68.00 - $102.00 LARGE-CAP VALUE Health Care Health Care Bellwethers

5,978 4,511 4,4646,778 7,936 8,070

10,450 6,023 5,614

32,739 41,793 46,714(17,686) (20,729) (22,507)

4,277 5,541 5,54127,483 24,011 23,689

14,196 14,129 13,6558,240 11,006 11,006

15,053 21,064 24,207

19,425 20,238 20,238

6,061 4,555 5,195

84,397 90,448 92,794

22,220 25,918 26,284

12,549 14,932 14,6583,610 6,431 6,431

58,490 64,862 65,228

22,736 25,360 25,36013,534 13,584 13,584

41,448 41,376 41,37646,602 56,614 66,558

0 0 0

84,397 90,448 92,794

(62,143) (72,404) (80,368)25,907 25,586 27,566






Attractive

Pro Forma Cash Flow Statement -------------------- Historical --------------------


Cash from OperationsNet Income 6,193 7,082Depreciation and Amortization 4,519 3,625Deferred Income Taxes (509) 0Operating Gains Or Losses 1,445 (454)Changes in Working Capital (726) 0

Cash Flow from Operations 10,922 10,253

Cash from InvestingPurchase of Property, Plant, Equipment (2,615) (4,684)Other Investing Cash Flows 6,929 (4,759)Cash Flow from Investing 4,314 (9,443)

Cash from FinancingIssuance (Retirement) of Stock (8,500) (1,192)Issuance (Retirement) of Debt 837 5,011Dividends Paid (5,172) (6,215)Other Financing Cash Flows (325) (436)Cash Flow from Financing (13,160) (2,832)

Foreign Exchange (205) 253

Net Change in Cash 1,871 (1,769)




---------- Projected ----------

3,652 3,646 3,6770 0 0

9,777 15,793 16,742

13,440 12,744 14,698

11 (7,000) (6,000)0 305 279

(2,629) (4,825) (4,921)

(3,473) (4,825) (4,921)844 0 0

(5,695) (6,541) (6,799)5 0 0

(4,419) (1,983) (1,963)1,248 0 0

17 0 0

1,967 (605) 1,015

(8,861) (8,524) (8,762)






Attractive

Health Care BellwethersHealth Care Bellwethers FAIRLY VALUED

Company Name TickerMarket Cap (USD-

mil) DCF Valuation ValueCreation™ ValueRisk™ ValueTrend™ Technicals Relative Strength

Abbott ABT 208,966 FAIRLY VALUED EXCELLENT LOW POSITIVE BULLISH NEUTRAL

AbbVie ABBV 194,838 FAIRLY VALUED EXCELLENT MEDIUM NEGATIVE BULLISH NEUTRAL

Amgen AMGN 144,588 FAIRLY VALUED EXCELLENT LOW NEGATIVE BEARISH WEAK

Baxter Intl BAX 41,681 FAIRLY VALUED EXCELLENT MEDIUM NEGATIVE BEARISH WEAK

Becton, Dickinson BDX 70,493 FAIRLY VALUED EXCELLENT MEDIUM POSITIVE BULLISH WEAK

Biogen BIIB 57,800 FAIRLY VALUED EXCELLENT MEDIUM NEGATIVE BULLISH STRONG

Boston Scientific BSX 61,832 FAIRLY VALUED VERY POOR MEDIUM POSITIVE BULLISH NEUTRAL

Bristol-Myers Squibb BMY 150,255 FAIRLY VALUED EXCELLENT LOW NEGATIVE BULLISH WEAK

CVS Health CVS 107,712 OVERVALUED EXCELLENT MEDIUM POSITIVE BEARISH NEUTRAL

Eli Lilly LLY 214,977 OVERVALUED EXCELLENT LOW NEGATIVE NEUTRAL STRONG

Gilead Sciences GILD 86,370 FAIRLY VALUED EXCELLENT MEDIUM NEGATIVE BULLISH WEAK

Intuitive Surgical ISRG 114,373 FAIRLY VALUED EXCELLENT MEDIUM NEGATIVE BULLISH STRONG

Johnson & Johnson JNJ 453,779 FAIRLY VALUED EXCELLENT LOW POSITIVE VERY BULLISH WEAK

Medtronic MDT 173,698 FAIRLY VALUED EXCELLENT LOW NEGATIVE VERY BULLISH WEAK

Merck MRK 198,325 FAIRLY VALUED EXCELLENT LOW NEGATIVE BULLISH NEUTRAL

Mettler-Toledo MTD 34,679 FAIRLY VALUED EXCELLENT LOW POSITIVE BULLISH STRONG

Pfizer PFE 223,281 FAIRLY VALUED EXCELLENT LOW POSITIVE VERY BULLISH WEAK

Regeneron REGN 66,485 FAIRLY VALUED EXCELLENT MEDIUM NEGATIVE NEUTRAL STRONG

Stryker SYK 100,597 FAIRLY VALUED EXCELLENT MEDIUM POSITIVE BULLISH WEAK

UnitedHealth Group UNH 395,999 FAIRLY VALUED EXCELLENT MEDIUM POSITIVE VERY BULLISH NEUTRAL

Vertex Pharma VRTX 52,137 FAIRLY VALUED EXCELLENT HIGH POSITIVE BEARISH WEAK

Walgreens Boots Alliance WBA 41,678 FAIRLY VALUED GOOD LOW POSITIVE BEARISH WEAK

Zimmer Biomet ZBH 32,975 FAIRLY VALUED EXCELLENT LOW NEGATIVE BEARISH WEAK

Zoetis ZTS 94,572 FAIRLY VALUED EXCELLENT MEDIUM POSITIVE NEUTRAL STRONG


We think the Health Care Bellwethers industry is fairly valued at this time. Theindustry's market cap is trading between 80% and 120% of our estimate of its fair valuebased on our DCF process. Although we use a firm-specific ValueRisk™ measure todetermine whether a firm is undervalued or overvalued based on our DCF process, weconsider an industry to be undervalued if it is trading below 80% of our estimate of itsfair value and overvalued if it is trading at over 120% of our estimate of its fair value.We think these fair value ranges are appropriate given the diversification benefits ofholding a basket of stocks. Although there may be individual opportunities within theHealth Care Bellwethers industry, we don't find the industry as a whole attractive basedsolely on valuation.


LARGE-CAP CORE NEUTRAL

LARGE-CAP CORE UNATTRACTIVE


The above bar chart reveals the price/fair value of the company, its peers, and the industry as a whole.Shaded blue denotes that the firm has earned the highest rating for that respective category.Investment Style Relative Valuation

MEGA-CAP CORE NEUTRAL

LARGE-CAP VALUE NEUTRAL


MEGA-CAP CORE UNATTRACTIVE

LARGE-CAP CORE ATTRACTIVE



LARGE-CAP VALUE UNATTRACTIVE


LARGE-CAP GROWTH UNATTRACTIVE



MEGA-CAP VALUE NEUTRAL

MEGA-CAP CORE NEUTRAL

LARGE-CAP BLEND NEUTRAL


MEGA-CAP GROWTH ATTRACTIVE

LARGE-CAP BLEND NEUTRAL





91.8%

101.9%

105.0%

85%

90%

95%

100%

105%

110%

Merck Peer Median Health Care Bellwethers

Valuentum's Full Page Stock Report


BA

G

I

N

C

J

D

M

H

E

L

K

A DCF ValuationShows whether the firm is undervalued, fairly valued, or overvalued based on our DCF process and by how much.

B Valuentum Buying Index (VBI)Provides insight into the timeliness of an investment opportunity. We rank firms from 1 to 10 based on rigorous fiancial, valuation, and technical analysis. A 10 represents one of our top picks.

C Valuentum Value Rating (VVR) Indicates whether we think a firm is undervalued, fairly valued, or overvalued on the basis of our DCF process.

D Investment ConsiderationsEvaluates firms on 12 different measures, from the firm's growth and cash flow generation to the stock's money flow index and upside/downside volume. We reveal technical support and resistance levels.

E 30-week Price and Volume ActionDisplays the last accumulation or distribution week of the stock and historical price and volume action.

G Company VitalsShows sector,industry and other relevant company information.

H Business QualitySummary of the firm's ability to create value for shareholders compared wth the underlying risk of its operations.

I Normalized EPS and EBITDAEstimation of the firm's normalized earnings measures and the corresponding valuation mutliples.

J Investment HighlightsOur opinion of the company, including analysis of its financial and technical strengths and weaknesses.

K Relative ValuationComparison of the firm's PE, PEG, and Price/FV ratios versus peers.

L Returns Summary3-year averages of the firm's key return measures, including return on invested capital, with and without goodwill.

M Leverage, Coverage, and LiquidityA snapshot of the company's financial health.

N Financial SummaryA summary of the proforma financial statements found in the extended report.

VBI Score Action10 Top Pick9 We'd Consider Buying

6 to 8 Constructive (add/trim)3 to 6 Less Exciting (add/trim)1 to 2 We'd Consider Selling

UNDERVALUED

FAIRLY VALUED

OVERVALUED

• Revenue Volatility • Margin Volatility • Earnings Volatility • Cash Flow Volatility

About Valuentum

@Valuentum, we strive to stand out from the crowd. Mostinvestment research publishers fall into a few camps,whether it be value, growth, income, momentum, chartistor some variant of the aforementioned. We think each inits own right holds merit, but we think the combination ofthese approaches can be even more powerful. After all,stock price movements aren’t just driven by investors ofthe value or growth variety, but by all market participants.Therefore, we look at stocks from a variety of investmentperspectives in order to better understand and identifyideas. We want to provide relevant information.

The core of our process is grounded in rigorous discountedcash flow analysis and incorporates the concept of amargin of safety. We offer a fair value estimate for eachcompany and provide a relative valuation assessment inthe context of a company’s industry and closest peers. Across section of our ValueCreation™ and ValueRisk™ratings provides a financial assessment of a company’sbusiness quality, while our ValueTrend™ rating offersinsight into the trajectory of a firm’s economic profitcreation. The Economic Castle rating measures themagnitude of future economic value generation, and theDividend Cushion ratio assesses the financial capacity of acompany to keep raising its dividend.

Our analysis doesn’t stop there. We also offer a technicalevaluation of the stock as well as other momentumindicators. We not only want to reveal to readers whichfirms may be undervalued, in our view, but we also wantto provide readers with information to help them assessentry and exit points. Most research publishers focus onarriving at a target price or fair value estimate, but mayfall short of providing a technical assessment to bolsterbuy and sell disciplines. We strive to go the distance andprovide readers with answers--not half the story.

An explanation of our approach would not be complete ifwe didn’t describe our ideal stock idea. We’re lookingfor companies that are undervalued--both on a DCF basisand versus peers--have strong growth potential, have asolid track record of creating economic profits forshareholders with reasonable risk, are strong cash flowgenerators, have manageable financial leverage, and arecurrently showing bullish technical and momentumindicators. For dividend growth ideas, we look forcompanies that have both the capacity and willingness tokeep raising the dividend.

Can such stock ideas exist? Subscribe to Valuentum toreceive our best investment ideas and analysis onhundreds of stocks, dividends, ETFs and more.


Historical firm-specific financial data generates our ValueCreation™, ValueRisk™, and ValueTrend™ ratings. The data provides the basis for our financial forecasts. Full annual forecasts of income statement, balance sheet, and cash flow statement items. Firm-specific cost of equity, cost of debt, weighted average cost of capital, and long-term growth and profitability measures estimated.

A complete three-stage free cash flow to the firm valuation model generates an estimate of the firm's equity value per share based on estimated future free cash flows.The volatility of key valuation drivers are estimated and a margin of safety is determined.

The firm's stock price is compared to the suggested margin of safety. If a firm's stock price falls below the lower bound of our estimated fair value range, it receives Valuentum's highest Value Rating.

Financial Forecasts

Financial Statement Analysis

Discounted Cash Flow Valuation

ModelValueRisk™

Rating

Valuentum Value Rating (VVR)

VBI Score Action10 Top Pick9 We'd Consider Buying

6 to 8 Constructive (add/trim)3 to 6 Less Exciting (add/trim)1 to 2 We'd Consider Selling

Methodology for Picking Stocks - Valuentum Buying Index™ (VBI)

@ Valuentum, we like to look at companies from anumber of different perspectives. The Valuentum BuyingIndex (VBI) combines rigorous financial and valuationanalysis with an evaluation of a stock's technicals to derivea rating between 1 and 10 for each company. The VBIplaces considerable emphasis on a company's discountedcash-flow (DCF) valuation, its relative valuation versuspeers (both forward PE and PEG ratios), and its technicalsin order to help readers assess entry and exit points on themost interesting ideas.

Let's follow the red line on the flow chart below to seehow a company can score a 10, the best mark on the index(a "Top Pick"). First, the company would need to be'undervalued' on a DCF basis and 'attractive' on a relativevalue basis. The stock would also have to be exhibiting

'bullish' technicals. The firm would need aValueCreation™ rating of 'good' or 'excellent', exhibit'high' or 'aggressive' growth prospects, and generate atleast a 'medium' or 'neutral' assessment for cash flowgeneration, financial leverage, and relative price strength.

This is a tall order for any company. Stocks that don'tmake the cut for a 10 are ranked accordingly, with theleast attractive stocks, in our opinion, garnering a ratingof 1 ("We'd sell"). Most of our coverage universeregisters ratings between 3 and 7, but at any given timethere could be large number of companies garneringeither very high or very low scores, especially at marketlows or tops, respectively.

The Best Ideas Newsletter portfolio puts the VBI intopractice.

The information contained in this report is not represented or warranted to be accurate, correct, complete, or timely. This report is for informational purposes only and should not be considered a solicitation to buy or sell a security. Before acting on any information in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Assumptions, opinions, and estimates are based on our judgment as of the date of the report and are subject to change without notice. Valuentum is not responsible for any errors or omissions or for results obtained from the use of this report. Redistribution is prohibited without written permission. To license Valuentum research, contact us at [email protected].

DCF FairlyValued

DCF Undervalued

Relative ValueUnattractive/Neutral

Relative Value Attractive

Relative ValueUnattractive/Neutral


Technicals Bearish: 1

Technicals Neutral: 2

TechnicalsBullish: 4

Technicals Bullish: 7

TechnicalsBearish: 6

Technicals >= BullishValueCreation(TM) >= GoodGrowth >= HighCash Flow Generation >= MediumFinancial Leverage <= MediumRelative Strength >= Neutral

Final Score: 10



TechnicalsBearish: 3

Relative Value Unattractive/Neutral











Initial Index Score

DCF Overvalued

GlossaryEstimated Fair Value. This measure is our opinion of the fair equity value per share ofthe company. If our forecasts prove accurate, which may not always be the case, wemay expect a firm's stock price to converge to this value within the next 3 years.

Investment Style. Valuentum uses its own proprietary stock-classification system.Nano-cap: Less than $50 million; Micro-cap: Between $50 million and $200 million;Small-cap: Between $200 million and $2 billion; Mid-cap: Between $2 billion and$10 billion; Large-cap: Between $10 billion and $200 billion; Mega-cap: Over $200billion. Blend: Firm's that we think are undervalued and exhibit high growthprospects (growth in excess of three times the rate of assumed inflation). Value:Firm's that we believe are undervalued, but do not exhibit high growth prospects.Growth: Firms that are not undervalued, in our opinion, but exhibit high growthprospects. Core: Firms that are neither undervalued nor exhibit high growthprospects.

Fair Value Range. The fair value range represents an upper bound and lower bound,between which we would consider the firm to be fairly valued. The range considers ourestimate of the firm's fair value and the margin of safety suggested by the volatility ofkey valuation drivers, including revenue, gross margin, earnings before interest, andenterprise free cash flow (the determinants behind our ValueRisk™ rating).

DCF Valuation. We opine on the firm's valuation based on our DCF process. Firmsthat are trading with an appropriate discount to our fair value estimate receive anUNDERVALUED rating. Firms that are trading within our fair value range receive aFAIRLY VALUED rating, while firms that are trading above the upper bound of ourfair value range receive an OVERVALUED rating.

Company Vitals. In this section, we list key financial information and the sector andindustry that Valuentum assigns to the stock. The P/E-Growth (5-yr), or PEG ratio,divides the current share price by last year's earnings (EPS) and then divides thatquotient by our estimate of the firm's 5-year EPS growth rate. The estimatednormalized diluted EPS and estimated normalized EBITDA represent the five-yearforward average of these measures used in our discounted cash flow model. The P/Eon estimated normalized EPS divides the current share price by estimated normalizeddiluted EPS. The EV/estimated normalized EBITDA considers the current enterprisevalue of the company and divides it by estimated normalized EBITDA. EV is definedas the firm's market capitalization plus total debt, minority interest, preferred stockless cash and cash equivalents.

Relative Value. We compare the firm's forward price-to earnings (PE) ratio and itsprice/earnings-to-growth (PEG) ratio to that of its peers. If both measures fall below thepeer median, the firm receives an ATTRACTIVE rating. If both are above the peermedian, the firm receives an UNATTRACTIVE rating. Any other combination resultsin a NEUTRAL rating.

ValueCreation™. This is a proprietary Valuentum measure. ValueCreation™indicates the firm's historical track record in creating economic value for shareholders,taking the average difference between ROIC (without goodwill) and the firm'sestimated WACC during the past three years. The firm's performance is measured alongthe scale of EXCELLENT, GOOD, POOR, and VERY POOR. Those firms withEXCELLENT ratings have a demonstrated track record of creating economic value,while those that register a VERY POOR mark have been destroying economic value.

Business Quality Matrix. We compare the firm's ValueCreation™ and ValueRisk™ratings. The box is an easy way for investors to quickly assess the business quality ofa company. Firms that generate economic profits with little operating variabilityscore near the top right of the matrix.

Timeliness Matrix. We compare the company's recent stock performance relative tothe market benchmark with our assessment of its valuation. Firms that areexperiencing near-term stock price outperformance and are undervalued by ourestimate may represent timely buys.ValueRisk™. This is a proprietary Valuentum measure. ValueRisk™ indicates the

historical volatility of key valuation drivers, including revenue, gross margin, earningsbefore interest, and enterprise free cash flow. The standard deviation of each measure iscalculated and scaled against last year's measure to arrive at a percentage deviation foreach item. These percentage deviations are weighted equally to arrive at thecorresponding fair value range for each stock, measured in percentage terms. The firm'sperformance is measured along the scale of LOW, MEDIUM, HIGH, and VERY HIGH.The ValueRisk™ rating for each firm also determines the fundamental beta of eachfirm along the following scale: LOW (0.85), MEDIUM (1), HIGH (1.15), VERY HIGH(1.3).

Range of Potential Outcomes. The firm's margin of safety is shown in the graphicof a normal distribution. We consider a firm to be undervalued if its stock price fallsalong the green line and overvalued if the stock price falls along the red line. Weconsider the firm to be fairly valued if its stock price falls along the yellow line.

Return on Invested Capital. At Valuentum, we place considerable emphasis onreturn on invested capital (both with and without goodwill). The measure focuses onthe return (earnings) the company is generating on its operating assets and is superiorto return on equity and return on assets, which can be skewed by a firm's leverage orexcess cash balance, respectively. ValueTrend™. This is a proprietary Valuentum measure. ValueTrend™ indicates the

trajectory of the firm's return on invested capital (ROIC). Firms that earned an ROIClast year that was greater than the 3-year average of the measure earn a POSITIVErating. Firms that earned an ROIC last year that was less than the 3-year average of themeasure earn a NEGATIVE rating.

Technical Evaluation. We evaluate a firm's near-term and medium-term movingaverages and money flow index (MFI) to assign each firm a rating along thefollowing scale: VERY BULLISH, BULLISH, NEUTRAL, BEARISH, and VERYBEARISH.

Cash Flow Generation. Firms' cash flow generation capacity are measured along thescale of STRONG, MEDIUM, and WEAK. A firm with a 3-year historical free cashflow margin (free cash flow divided by sales) greater than 5% receives a STRONGrating, while firms earning less than 1% of sales as free cash flow receive a WEAKrating.

Stock Price Relative Strength. We assess the perfomance of the company's stockduring the past quarter, 13 weeks, relative to an ETF that mirrors the aggregateperformance of constituents of the stock market. Firms are measured along the scaleof STRONG, NEUTRAL, and WEAK. Companies that have outperformed themarket index by more than 2.5% during this 13-week period receive a STRONGrating, while firms that trailed the market index by more than 2.5% during this 13-week period receive a WEAK rating.

Financial Leverage. Based on the firm's normalized debt-to-EBITDA metric, we rank firms on the following scale: LOW, MEDIUM, and HIGH. Companies with a normalized debt-to-EBITDA ratio below 1.5 receive a LOW score, while those with a measure above 3 receive a HIGH score.

Money Flow Index (MFI). The MFI is a technical indicator that measures buyingand selling pressure based on both price and volume. Traders typically use thismeasure to identify potential reversals with overbought and oversold levels. We use a14-week measure to rank firms along the following scale: EXTREMELYOVERBOUGHT (>90), OVERBOUGHT (80-90), NEUTRAL (20-80), OVERSOLD(10-20), EXTREMELY OVERSOLD (0-10).

Upside/Downside Volume. Heavy volume on up days and lower volume on down days suggests that institutions are heavily participating in a stock's upward advance. We use the trailing 14-week average of upside and downside volume to calculate an informative ratio. We rank each firm's U/D volume ratio along the following scale: BULLISH, IMPROVING, DETERIORATING, and BEARISH.

The information contained in this report is not represented or warranted to be accurate, correct, complete, or timely. This report is for informational purposes only and should not be considered a solicitation to buy or sell a security. Before acting on any information in this material, you should consider whether it is suitable for your particular circumstances and, if necessary, seek professional advice. Assumptions, opinions, and estimates are based on our judgment as of the date of the report and are subject to change without notice. Valuentum is not responsible for any errors or omissions or for results obtained from the use of this report. Redistribution is prohibited without written permission. To license Valuentum research, contact us at [email protected].

MRK Rating History Price Fair Value VBI9-Jul-21 $78.05 $85.00 67-May-21 $78.41 $85.00 66-Nov-20 $80.36 $80.00 320-Nov-19 $85.27 $87.00 625-Mar-19 $82.92 $73.00 611-Jan-19 $74.90 $70.00 35-Nov-18 $73.31 $64.00 615-Jun-18 $62.03 $62.00 72-Mar-18 $54.36 $57.00 320-Oct-17 $63.88 $60.00 714-Jul-17 $63.06 $60.00 43-Mar-17 $66.58 $60.00 626-Sep-16 $62.41 $55.00 627-May-16 $56.48 $55.00 6

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Merck MRK FAIRLY VALUED Buying Index™ 6 Value Rating

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