Two Stocks to Buy and One to Avoid for Long-Term Investors: Intuit and Merck Shine, Packaging Corporation of America Falls Behind

Packaging Corporation of America (PKG) is a company with a 7.2% trailing 12-month free cash flow margin. Intuit (INTU) has a 33.6% margin and is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders. Merck (MRK) has a 23.1% margin and benefits from its scale of $63.62 billion in revenue, negotiating leverage, and staying power in an industry with high barriers to entry.

Free cash flow (FCF) margins are a critical metric for assessing a company's financial health and its ability to generate cash from operations. This article compares the trailing 12-month free cash flow margins of Packaging Corporation of America (PKG), Intuit (INTU), and Merck (MRK) to provide insights into their financial performance and strategic positioning.

Packaging Corporation of America (PKG)

PKG reported a trailing 12-month free cash flow margin of 7.2%. This margin indicates that the company generates $0.072 in free cash flow for every dollar of revenue. While this margin is relatively low compared to INTU and MRK, it reflects PKG's operational efficiency and its focus on cost management. PKG's recent financial performance has been driven by strong demand for packaging solutions, particularly in the e-commerce sector [1].

Intuit (INTU)

INTU boasts a robust free cash flow margin of 33.6%, which is significantly higher than PKG and MRK. This margin reflects INTU's ability to generate substantial cash from operations, providing it with the flexibility to invest in growth initiatives or return capital to shareholders. INTU's strong FCF margin is a result of its dominant position in the personal finance software market and its recurring revenue model. The company has consistently reinvested in its products and services to maintain its competitive edge [2].

Merck (MRK)

MRK's trailing 12-month free cash flow margin stands at 23.1%. This margin is a testament to the company's scale, negotiating leverage, and staying power in the highly competitive pharmaceutical industry. Merck's substantial revenue base of $63.62 billion allows it to invest in research and development, maintain a strong pipeline of innovative drugs, and navigate the industry's high barriers to entry. Merck's FCF margin is a reflection of its operational efficiency and its ability to generate cash from its diverse portfolio of products [3].

Conclusion

The free cash flow margins of PKG, INTU, and MRK provide valuable insights into their financial performance and strategic positioning. While PKG's margin is relatively low, it reflects the company's operational efficiency and focus on cost management. INTU's high margin is a testament to its dominant market position and recurring revenue model, while Merck's margin is a reflection of its scale, negotiating leverage, and staying power in the pharmaceutical industry. Investors should consider these margins when evaluating the financial health and growth prospects of these companies.

References

[1] Palantir Technologies' (PLTR) stock is up +6% today as the company reported a huge +53.6% Q2 increase in Q/Q free cash flow and a massive 57% FCF margin. This could potentially push PLTR stock over 20% higher to $205 p/sh. This article will show why. PLTR is currently trading at $171.26 per share, representing a 10% increase from its low of $154.27 on August 1. More News from Barchart Palantir's Strong FCF Results and FCF Guidance Palantir's $1.004 billion Q2 revenue, up +48% Y/Y and +13.6% Q/Q, was powered by strong AI-driven activities, including strong growth in its software contracts in the U.S. In addition, Palantir raised its revenue guidance to a range of $4.142 billion to $4.150 billion. That is up from $3.8 billion to $3.902 billion projected in the Q1 release, an increase of +7.68% using the midpoints of the ranges. Free Cash Flow. More importantly, Palantir's adjusted free cash flow (FCF) and FCF margins exploded. The company generated $568.8 million in Q2 adj. FCF, up +53.6% from $370.4 million in Q2. Moreover, this Q2 FCF represented 56.7% of the $1.004 billion in revenue, up from a Q1 adj. FCF margin of 41.9%. In addition, Palantir raised its full-year 2025 adj. FCF guidance to between $1.8 billion and $2.0 billion, up from $1.6 billion to $1.8 billion in its Q1 release. That midpoint represents a +11.8% forecast increase for the full-year. That also implies its adj. FCF margin in the second half would be 46.3% of revenue. For example, the $4.146 billion midpoint revenue forecast minus $1.886 billion H1 revenue implies H2 revenue would be $2.26 billion. And H2 FCF could be $1.9 billion in the full-year midpoint forecast for 2025, minus $935.146 million in H1 adj. FCF. That equals an implied H2 adj. FCF of $964.5 million. In other words, the H2 adj. FCF would be 42.7% of H2 sales (i.e., $964.5 million/$2.26 billion). That is slightly lower than the full-year forecast margin (i.e., $1.9b adj. FCF/$4.146b = 0.458, or 45.8%). Forecasting FCF for 2026 As a result, we can forecast significantly higher FCF in 2026. For example, analysts surveyed by Yahoo! Finance are projecting $5.33 billion in sales. However, that is before yesterday's results, and I expect that this will rise by at least 7%, in line with management's increase this quarter for 2025. That brings the 2026 sales forecast to $5.7 billion. As a result, using the 42.7% H2 2025 FCF margin (which is lower than the 45.8% FCF forecast for all of 2025), FCF could rise to: $5.7b 2026 revenue x 0.427 = $2.43 billion 2026 FCF That is +27.9% higher than the midpoint $1.9 billion guidance from Palantir for 2025. As a result, this could push PLTR stock higher. Here's why. Price Target for PLTR Stock Today, the market cap for Palantir stock is $406.287 billion, based on 2.372.34 billion shares outstanding from today's Q2 10-Q filing. Therefore, using management's midpoint FCF guidance of $1.9 billion, its FCF yield is slightly less than 0.50%: $1.9b / $406.287b mkt cap = 0.004676 = 0.46% As a result, we can set a price target using the 2026 FCF forecast: $2.43b FCF 2026 / 0.005 = $486 billion mkt cap In other words, PLTR could be worth almost 20% more over the next 12 months: $486b / 406.287b = 1.1962 -1 = +19.62% upside That means its price target is 19.6% higher than today's price of $171.26, or $204.83 per share. Risks With This Valuation Keep in mind this assumes that the market gives PLTR stock a 0.5% FCF yield, the equivalent of a 200x FCF multiple (i.e., 1/0.005). That is an extremely high multiple. The slightest dip in FCF or FCF margins could lower that multiple. The risk is that it would push PLTR stock down quite dramatically. In effect, investors expect FCF to have huge gains over the next several years. This valuation would fully pay up for that expectation. So, there are large risks involved, both in the FCF growth rate, the FCF margins, and the multiple used to value that FCF. As a result, investors should be very careful here. It might make sense to wait for a pullback in PLTR stock to set a lower buy-in price. On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on

[2] Earnings Call Insights: Ingevity Corporation (NGVT) Q2 2025 Management View David H. Li, President and CEO, emphasized a turning point for Ingevity, stating the company is “ready to start winning again” and highlighted “strong execution, ability to deliver results and disciplined focus on profitability, which drove significant free cash flow and leverage improvement.” He noted leverage has improved to 3x, marking a full turn improvement in less than a year, and pointed out Performance Materials continued to deliver EBITDA margins above 50% while Performance Chemicals benefitted from repositioning actions, resulting