Bristol-Myers Is Almost In The 'Buy Zone'

Jun.24.14 | About: Bristol-Myers Squibb (BMY)

Summary

BMY is down over 15% from its recent high.

BMY is one of our "stocks to watch" in the Healthcare sector.

BMY is nearing a good entry point for long term investors.

We are in the midst of our DIY Dividend Investors Club series which is dedicated to the open discussion and analysis of building and managing a long-term dividend portfolio. The goal of the series is to build a dividend portfolio "watch list" by sector (based on the 9 major sectors in the S&P 500 as well as alternative sectors like MLPs, REITs and BDCs).

Bristol-Myers Squibb (NYSE:BMY) is one of our "stocks to watch" in the Healthcare sector and this article highlights some key information and analysis from our Buy Zone Report for BMY.

Bristol-Myers Squibb Business Overview (source: S&P Capital IQ)

Bristol-Myers Squibb Company discovers, develops, licenses, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. It provides chemically-synthesized drugs or small molecule products, and biologics in various therapeutic areas, including virology comprising human immunodeficiency virus infection (HIV); oncology; neuroscience; metabolics; immunoscience; and cardiovascular. The company sells its products to wholesalers, and directly to distributors, retailers, hospitals, clinics, government agencies, and pharmacies. It has strategic alliances with various third parties. The company was formerly known as Bristol-Myers Company and changed its name to Bristol-Myers Squibb Company in 1989. Bristol-Myers Squibb Company was founded in 1887 and is headquartered in New York, New York.

Parsimony Rating

The core of our investment philosophy is to buy great stocks at reasonable prices and we use a combination of fundamental and technical analysis to determine which stocks to buy and when to buy them.

We created our ranking system, which ranks over 750 U.S. dividend stocks on a monthly basis, to help us find the best dividend stocks. In our experience, if you rank all of the stocks in a universe against their peers on a consistent basis, it becomes clear which companies are the strongest and which offer the best investment opportunities going forward. Our composite rating is derived by ranking each stock based on 28 key fundamental and technical data points in five sub-rating categories.

The table below for BMY highlights some of the key data points that we look at when determining our rating.

As highlighted in the table above, BMY has a solid overall Parsimony Rating of 93, primarily driven by decent ratings for Risk/Reward Profile (92) Financial Stability (71) and Dividend Track Record (78).

BMY has a low beta (0.44) and a strong balance sheet. The company has a decent dividend yield of 3.0% and it has delivered shareholders a 194% total return over the past 5 years.

While Bristol-Myer's dividend growth rate has been relatively modest over the past 5 years (2.7%), the company has a long and steady track record. As shown in the chart below, BMY has raised its quarterly dividend 5 times in the past 20 quarters.

Valuation Analysis

Valuation is a key factor in determining our "Buy Zones."

We use our rating system to determine WHICH stocks to buy and we use our "Buy Zone" reports to determine WHEN to buy them. We focus on four key levels of support when determining a "Buy Zone":

  • Valuation - Support levels based on historical valuation multiples.
  • Technical - Support from short and long-term trend lines (i.e., 10-week and 40-week moving average).
  • Volatility - Target correction levels based on historical volatility and maximum draw down.
  • Yield - Support levels based on forward dividend yield.

Below is a summary valuation analysis for BMY:

As highlighted above, BMY is currently trading at 27.74x trailing earnings, which represents 23.8% and 26.5% premiums to the company's respective 5-year and 10-year historical averages.

Based on consensus estimates for FYE 12/31/14, BMY is currently trading at 26.89x forward earnings, which represents 20.0% and 22.6% premiums to the company's respective 5-year and 10-year historical averages.

Is Bristol-Myers In The "Buy Zone"?

BMY is down over 15% from its recent highs and it currently trades only 2.1% above the top range of its Buy Zone. Ideally, we would like to purchase BMY under $47.00 (which would equate to a forward P/E ratio around 25.0x and a forward yield over 3.0%).

Conclusion

BMY is a great company with strong fundamentals and a stable track record and the stock is getting very close to a safe entry point for long-term investors.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.