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Summary

  • Despite expiring patents, Bristol-Myers Squibb remains a top-notch performer in big pharma.
  • Bristol-Myers continues to invest in their product pipeline, which helped the company achieve 6% revenue growth in the January quarter, beating estimates by 3%.
  • Trading at a P/E of 32 compared to Johnson & Johnson's multiple of 19, the majority of analysts still has a median target of $60.

Investors in the healthcare sector remain in perpetual worry over the health of their stocks. Despite recent concerns about its pipeline and pricing pressure, Bristol-Myers Squibb (NYSE:BMY), whose stock is down 5% year-to-date, remains a standout performer in big pharma. Although investors have complained over slowing growth due to the expiration of top-selling drug Plavix, Bristol-Myers still has what I believe to be an ace in the drug Nivolumab, which has yielded unprecedented response rates in cancer patients with metastatic melanoma.

From that standpoint, the company's management has gotten the credit they rightfully deserve. Not only does Bristol-Myers continue to invest in growth opportunities, but the company has consistently taken the best punches from giants like Johnson & Johnson (NYSE:JNJ), who recently brought to market Xarelto to compete with Bristol-Myers' new blockbuster drug Eliquis, an anticoagulant for preventing blood clots.

Unlike some of its rivals, Bristol-Myers continues to invest in their product pipeline, which helped the company achieve 6% revenue growth in the January quarter, about 3% ahead of the average sell-side estimate and almost 1% ahead of the high end estimate. The company continues to post strong growth numbers, helped by new cancer drugs like Sprycel and Yervoy, which were up 30% and 23%, respectively from the year-ago period.

And this is while the company posted strong margins, relative to expectations. And when you consider the 24% jump in operating income and sting cost-cutting measures, it's surprising that the stock has grossly underperformed the broader indices. But I don't expect this weakness to continue once the company reports first-quarter earnings Tuesday.

Given the strong January performance, analyst seem more positive ahead of this report. The Street is looking for Bristol-Myers Squibb to post 43 cents in earnings per share, which represents a 5% increase year over year. Last year, the company posted earnings of 41 cents. For the full fiscal year, the Street will be looking for earnings of $1.77 per share.

In terms of revenue, analysts will be looking for $3.89 billion, or a 1.5% year over year increase. Last year, Bristol-Myers Squibb posted revenue of $3.83 billion. For the year, revenue is expected to come in at $15.55 billion, which will be down 5% from last year's mark of $16.38 billion. Much of the revenue weakness is projected to come from expiring patents, which is (as noted) also plagues several of the company's rivals. But for Bristol-Myers, the story is not as dire.

Consider, despite their expiring patents, drugs like Plavix and Avapro are still holding relatively strong. That both drugs still combined for more than $100 million in revenue is a significant sign to their staying power, especially when there are cheaper alternatives available. This is a testament to their effectiveness and the brand respect Bristol-Myers commands.

To that end, while I expect both drugs to show more declines Tuesday, the important thing to factor is the extent to which these declines can be offset by other drugs like Sprycel and Yervoy, which have both grown by more than 20% year over year. And when you factor in Byetta, a metabolic drug used to treat type-2 diabetes, which has posted growth of 92%, Bristol-Myers Squibb has a strong portfolio of names to help deliver long-term growth. And I believe Byetta has shown enough momentum to threaten (among others) Johnson & Johnson's dominance in type-e diabetes market.

All told, this is a strong name in a competitive drug market. While this stock is certainly not cheap, trading at a P/E of 32 compared to Johnson & Johnson's multiple of 19, the majority of analysts still has a median target of $60, which I believe is achievable by the second half of the year. And assuming management can continue to grow free-cash-flow with increased cost-cutting measure, there's an outside shot that shares can reach $65 in 12 to 18 months, if Eliquis and Byetta can continue to gain traction.

Source: Why Bristol-Myers Squibb Is Heading To $60