Pharmaceutical companies enjoy almost inelastic demand for their products irrespective of economic cycles. This makes them an attractive long-term investment option. I believe Bristol-Myers Squibb Company (BMY) could be the perfect stock to buy and hold for the next twenty years.
Let me explain why…
Currently, the economy is on the brink of a recession, with the U.S. Federal Reserve not showing signs of stopping the interest rate hikes. With inflation remaining elevated and the employment market remaining strong, the economy looks set to face a slowdown. This will lead to turbulence in the stock market. However, that should not deter investors from buying shares of biopharmaceutical-major BMY.
BMY breezed past the consensus revenue and EPS estimates in the fourth quarter. Its revenue beat analyst estimates by 1.9%, while its EPS came 5.2% above the consensus estimate. BMY’s M.D., board chair and CEO Giovanni Caforio said, “2022 was a successful year for our company, one of significant clinical and regulatory achievements that broadened our product portfolio and advanced our pipeline.”
“We are especially proud to have launched three first-in-class medicines that address serious unmet medical needs for patients. With a younger and more diversified portfolio, promising mid-to-late stage registrational assets, and a deep early-stage pipeline, I am confident that the company is well-positioned for multiple waves of innovation that will support long-term growth,” he added.
In 2022, BMY launched three first-in-class medicines, melanoma treatment Opdualag, obstructive hypertrophic cardiomyopathy drug Camzyos, and plaque psoriasis drug Sotyktu. For first-in-class myosin inhibitor Camzyos, BMY believes the drug could bring more than $4 billion in peak sales. The company expects its new product portfolio to generate revenues of between $10 to $13 billion by 2025.
BMY acquired Turning Point Therapeutics, Inc. (TPTX) last August. “The acquisition of Turning Point Therapeutics further broadens our leading oncology franchise by adding a best-in-class, late-stage precision oncology asset,” said Giovanni Caforio.
The acquisition of TPTX will help BMY as its lead asset; repotrectinib is the next-generation, potential best-in-class tyrosine kinase inhibitor (TKI) targeting the ROS1 and NTRK oncogenic drivers of non-small cell lung cancer and other advanced solid tumors. BMY expects repotrectinib to be approved in the United States in the second half of 2023.
For fiscal 2023, BMY’s total revenues are expected to increase by approximately 2% at reported rates and approximately 2% excluding foreign exchange. Its revenues from Revlimid are expected to be approximately $6.50 billion. In addition, its non-GAAP EPS is expected to come between $7.95 and $8.25, while its GAAP EPS is expected to come between $4.03 and $4.33.
The drugmaker is known for paying high dividends. BMY is expected to pay a quarterly dividend of $0.57 per share on May 1, 2023. It pays a $2.28 per share dividend annually, translating to a 3.45% yield on the current price. Its four-year dividend yield is 3.02%. Its dividend payouts have grown at a CAGR of 9.2% over the past three years and 6.9% over the past five years.
BMY’s stock has declined 9.8% over the past month and 4.2% over the past year to close the last trading session at $66.
Here’s what could influence BMY’s performance in the upcoming months:
Strategic Divestment
On January 3, 2023, BMY announced that it had completed the previously announced sale of the manufacturing facility in Syracuse, New York, to South Korea-based LOTTE BIOLOGICS. This divesture is part of the evolution of its manufacturing facilities to support its current product portfolio.
Also, BMY entered into a contract manufacturing organization (CMO) relationship with LOTTE.
Mixed Financials
For the fourth quarter ended December 31, 2022, BMY’s total revenues declined 4.8% year-over-year to $11.41 billion. Its non-GAAP gross profit declined 7.7% year-over-year to $8.89 billion. The company’s non-GAAP net earnings attributable to BMS declined 5.6% from the prior-year quarter to $3.87 billion. In addition, its non-GAAP EPS came in at $1.82, representing a decline of 1.1% year-over-year.
For fiscal 2022, BMY’s total revenues declined 0.5% year-over-year to $46.16 billion. Its non-GAAP gross profit declined 1.8% year-over-year to $36.38 billion.
On the other hand, the company’s non-GAAP net earnings attributable to BMS increased 2.8% from the prior-year period to $16.53 billion. In addition, its non-GAAP EPS came in at $7.70, representing an increase of 7.5% year-over-year.
Favorable Analyst Estimates
Analysts expect BMY’s EPS for fiscal 2023 and 2024 to increase 4.3% and 2.3% year-over-year to $8.03 and $8.21, respectively. Its revenue for fiscal 2023 and 2024 is expected to increase 1.8% and 2.6% year-over-year to $46.99 billion and $48.20 billion, respectively.
Its EPS is expected to increase 4.1% per annum over the next five years. The company surpassed Street EPS estimates in each of the trailing four quarters.
Discounted Valuation
In terms of forward non-GAAP P/E, BMY's 8.22x is 56.6% lower than the 18.92x industry average. Its forward P/S of 2.95x is 30.3% lower than the 4.23x industry average. Also, the stock's 8.22x trailing-12-month EV/EBITDA is 37.2% lower than the 13.09x industry average.
High Profitability
In terms of trailing-12-month EBIT margin, BMY’s 21.40% compares to the industry average of negative 0.86%. Likewise, its 43.68% trailing-12-month EBITDA margin is significantly higher than the industry average of 3.39%. Furthermore, the stock’s 0.45x trailing-12-month asset turnover ratio is 31.9% higher than the industry average of 0.34x.
POWR Ratings Show Promise
BMY has an overall rating of A, which equates to a Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. BMY has an A grade for Value, in sync with its discounted valuation.
It has a B grade for Quality, consistent with its high profitability. Its 0.45 beta justifies its B grade for Stability.
BMY is ranked #2 out of 167 stocks in the Medical - Pharmaceuticals industry. Click here to access BMY’s Growth, Momentum, and Sentiment ratings.
Bottom Line
BMY expects about 50% of its revenue to come from acquisitions in 2030. The company is confident that its new product portfolio will spearhead its long-term growth. CEO Giovanni Caforio said the company is transitioning its portfolio to be “younger, more diversified, and more resilient” amid an increasingly complex pricing environment.
BMY expects its new launches to become blockbusters. Sotyku is expected to generate strong sales as it gains market share in oral moderate to severe psoriasis.
The company is set to grow strongly in the long term due to its strong portfolio of new drugs. Given its strong balance sheet, favorable analyst estimates, solid dividend payouts, discounted valuation, and high profitability, buying and holding the stock for the long term could be wise.
How Does Bristol-Myers Squibb Company (BMY) Stack up Against Its Peers?
BMY has an overall POWR Rating of A, equating to a Strong Buy rating. Check out these other stocks within the Medical – Pharmaceuticals industry with an A (Strong Buy) rating: Novo Nordisk A/S (NVO), Novartis AG (NVS), and Astellas Pharma Inc. (ALPMY).
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BMY shares were trading at $66.10 per share on Tuesday morning, up $0.10 (+0.15%). Year-to-date, BMY has declined -7.40%, versus a 2.29% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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