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Pharmaceutical giant Bristol-Myers Squibb Company (NYSE:BMY) is all set to unveil its third quarter 2011 results on October 27, 2011 before the start of trading. The Zacks Consensus Estimate for the third quarter is $0.58 (year-over-year decrease of 1.7%) on revenues of $5,278 million (year-over-year increase of 10.0%).

Second Quarter Recap

Bristol-Myers’ second quarter 2011 earnings (excluding special items) of $0.56 per share surpassed the Zacks Consensus Estimate by $0.01and the year-ago earnings by $0.02. Higher revenues boosted earnings in the 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 reported quarter climbed 14% to $5.4 billion. Foreign exchange positively impacted sales in the quarter by 4%. Revenues also surpassed the Zacks Consensus Revenue Estimate of $5.0 billion , driven by the impressive showing of Bristol-Myers’ lead drugs including blood thinner Plavix.

Agreement of Estimate Revisions

The analysts project an optimistic sentiment on Bristol-Myers’ to-be-reported quarter. Out of the 14 analysts covering the stock for the third quarter, 4 have revised their estimates upwards, while one moved in the opposite direction over the last 30 days. Earnings estimates for fiscal 2011 also have a distinct upward bias with 4 analysts increasing estimates over the past 30 days and only 2 moving in the opposite direction.

We believe that the upward bias is attributable to many positive events that have taken place at Bristol-Myers over the last few months. We note that the lead drug at Bristol-Myers is the block-buster blood-thinner Plavix, which has been co-developed with Sanofi-Aventis (NYSE:SNY). Plavix is slated to go off patent in the US next year. This is likely to result in substantial revenue losses for Bristol-Myers.

Bristol-Myers is looking to combat the generic threat through partnering deals and acquisitions. The New-York based pharma major has inked many deals so far this year.

Apart from acquisitions and partnership deals Bristol-Myers is looking to introduce new products to augment its product portfolio to combat the generic threat. Bristol-Myers has met with a fair amount of success this year toward achieving this objective. The approvals of key drugs in 2011, such as Yervoy, Nulojix and the subcutaneous formulation of Orencia in the US and Eliquis in the European Union are major boosts for the company.

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

Magnitude of Estimate Revisions

Given the directional pressure from the positive revisions, earnings estimate for the third quarter of 2011 has gone up by $0.01 over the last 30 days. Similarly, the earnings estimate for fiscal 2011 has gone up by $0.01 over the past 30 days. The current Zacks Consensus Estimates for the to-be-reported quarter and fiscal 2011 are $0.58 and $2.28, respectively.

Surprise History

Bristol-Myers has surpassed earnings estimates in three of the last four quarters. The company, while missing estimates in the final quarter of 2010, recorded a maximum positive surprise of 11.32% in third quarter 2010. On average, the earnings surprise was 5.12%.

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.

Source: Bristol-Myers Squibb: Earnings Preview