Final Recommendation

Analyzing the Models and Final Valuation

In the valuation of Merck & Co., four different financial models were applied to derive an estimate of its value. The Free Cash Flow (FCF) and Market Multiples models offer valuations that align closely with Merck & Co.'s stock price we used of $101.77 (As of Oct 20th) The Residual Operating Income (ROPI) model also suggests a higher valuation,  as well as the the Dividend Discount Model (DDM) which also presents a higher stock price of $113.95. However since there where no inconstancies  in the data we will still use them to calculate our final stock valuation.

The FCF model is based on the premise that Merck & Co.'s future cash flows will reflect the company's cost of capital and reasonable growth projections in terms of sales, expenses, and Net Operating Assets (NOA). The valuation this model provides indicates a belief in the company's solid financial health and potential for future expansion. The ROPI model, which provides the highest valuation, calculates the likely increase in residual operating income. This model factors in Merck & Co.'s efficiency and profitability in generating earnings above its operational costs and capital expenses.

On the other hand, the Market Multiples approach draws on comparative industry analysis, using peers to gauge Merck & Co.'s market position. The valuation of ($75.66) from this model is informed by the company's performance relative to its peers, considering factors such as revenue generation and earnings. The DDM, not being the outlier, is based on the assumption that the company's value is only represented by the dividends it pays to its shareholders. In the case of Merck & Co., this model provides a lower valuation, which might be indicative of the company's reinvestment strategies and growth initiatives that are not captured if only dividends are considered. However in order to fully analyze the final stock price I would recommend using the Dividend Discount, as it allows to get a further grasp on the stock price and compare it to the initial price of $101.77. The

Considering the assumptions and outcomes of these models, the final valuation of Merck & Co. is calculated by averaging the valuations from the FCF, ROPI, and Market Multiples models. The DDM is not excluded from this average even if its has a conservative nature. The understanding that Merck & Co. is likely reinvesting its earnings rather than distributing them entirely as dividends. The resulting average valuation, if it is $109.88 as indicated, suggests that Merck & Co.'s current stock might be slightly undervalued in the market at $101.77. This final averaged value, is rooted in the idea that the included models, reflects a comprehensive view of Merck & Co's financial stability and anticipates continued growth, offering investors a well-rounded perspective on the company’s worth. 

Table 1 illustrates the calculated value per common share for Merck & Co as determined by various valuation models. The values considered for the final calculation are indicated by a "1" and have been averaged to arrive at an overall value estimate of $109.88, which is highlighted in yellow. This figure represents a consolidated estimate derived from the different methodologies employed, each contributing to a holistic view of Merck & Co.'s financial valuation.