Bristol-Myers Squibb Earnings: Strong Pipeline and Finances Should Offset Generic Competition

Aug.11.11 | About: Bristol-Myers Squibb (BMY)

Following the release of encouraging second quarter 2011 results, the majority of analysts covering Bristol-Myers Squibb Company (NYSE:BMY) revised their earnings estimates upwards for 2011. The upward bias is primarily attributable to the encouraging efforts of the company to combat the loss of revenue that will arise once its key drugs, particularly the blockbuster Plavix, lose market exclusivity.

Second Quarter Flashback

Bristol-Myers’ second quarter 2011 earnings (excluding special items) of $0.56 per share surpassed the Zacks Consensus Estimate by $0.01 and year-ago earnings by $0.02. Higher revenues boosted earnings in the reported quarter.

On a reported basis (including special items), Bristol-Myers’ earnings in the quarter decreased 2% to $0.52 per share. The healthcare reform enacted in 2010 negatively impacted earnings in the reported quarter by $0.03.

Net sales in the second quarter of 2011 climbed 14% to $5.4 billion. Foreign exchange positively impacted sales in the quarter by 4%. Revenues also surpassed the Zacks Consensus Estimate of $5.0 billion, driven by the impressive showing of Bristol-Myers’ lead drugs including blood thinner Plavix. Bristol-Myers has co-developed Plavix with Sanofi-Aventis (NYSE:SNY).

Agreement of Estimate Revisions

There is a significant positive bias in the estimate revisions for fiscal 2011 over the last 30 days. Over the last 30 days, 14 of the 18 analysts following the stock for 2011 have upped their earnings estimates with no downward movement.

There is also an upward bias in the earnings estimate revisions for the remaining two quarters of fiscal 2011. Nine analysts have upped earnings estimates for the third quarter of 2011 with a sole downward movement over the last 30 days. The final quarter of 2011 has seen nine analysts increasing their estimates over the last 30 days with one analyst slashing the estimate.

Following solid second quarter results, Bristol-Myers upped its 2011 earnings guidance. The improved outlook caused a majority of the analysts covering the stock to follow suit. We note that 2011 has been a fruitful year for Bristol-Myers so far, with many key drugs getting approved.

The new approvals are perfectly in tune with Bristol-Myers’ strategy to expand its product portfolio as it aims to combat the loss of revenues due to the impending genericization of some of its key drugs, including the blockbuster blood-thinner Plavix.

Moreover, Bristol-Myers has a robust pipeline. The pipeline, on successful development and commercialization, will boost the pharma major’s top line significantly.

Earnings estimates for fiscal 2012 have been raised by seven analysts following Bristol-Myers with five moving in the opposite direction over the last 30 days.

Magnitude of Estimate Revisions

Given the directional pressure from the positive revisions, earnings estimate for fiscal 2011 has gone up by $0.06 over the last 30 days. However, fiscal 2012 earnings estimate has gone down by $0.02 over the last 30 days as the magnitude of positive revisions have been outweighed by negative revisions. The current Zacks Consensus Estimates for fiscal 2011 and 2012 are $2.26 and $2.03, respectively.

Our Recommendation

We currently have a Neutral recommendation on Bristol-Myers. The stock carries a Zacks #3 Rank (Hold rating) in the short run. Even though we are concerned about the high generic risk on many of Bristol-Myers’ leading franchises, we believe that the company’s diversified business model coupled with its strong financial position will help in tough situations.

About Earnings Estimate Scorecard: Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements.