2 Fundamental Reasons Why Bristol-Myers Squibb Is Outpacing Both Merck And Pfizer

| About: Bristol-Myers Squibb (BMY)

On Tuesday, September 11, analysts at Goldman Sachs upgraded shares of Bristol-Myers Squibb Co. (NYSE:BMY). Goldman Sachs reiterated its Buy rating on the stock and set a $40.00/share price target. An analyst upgrade or reiteration can mean great things for a stock, and in the wake of Goldman Sachs reiteration, which took place today, I wanted to highlight some of the positive catalysts behind my decision to establish a position in Bristol-Myers Squibb.


Bristol-Myers Squibb Co., which is based in New York, New York, is a biopharmaceutical company, engages in the discovery, development, licensing, manufacturing, marketing, distribution, and sale of biopharmaceutical products that help patients prevail over serious diseases worldwide. Its principal products include PLAVIX for protection against fatal or non-fatal heart attack or stroke; AVAPRO/AVALIDE for the treatment of hypertension and diabetic nephropathy; ELIQUIS to prevent and treat venous thromboembolic disorders and stroke prevention in atrial fibrillation; ABILIFY, an agent for adult patients with schizophrenia, bipolar mania disorder, and depressive disorder; and REYATAZ for the treatment of HIV. The company's principal products also comprise SUSTIVA for the treatment of HIV; BARACLUDE, an inhibitor of hepatitis B virus; ERBITUX to target and block the epidermal growth factor receptor; SPRYCEL for treatment of chronic myeloid leukemia in adults; YERVOY to treat metastatic melanoma; ORENCIA to treat moderate to severe rheumatoid arthritis in adults; NULOJIX to prevent solid organ transplant rejection; and ONGLYZA for the treatment of type 2 diabetes.

Margin Comparisons

In my opinion, the larger the profit or operating margin the more attractive the company and when those numbers outpace the competition, the company is certainly more attractive to potential investors. When it comes to major pharmaceutical drug makers, the same rules apply. In the last 12 months, BMY has demonstrated a profit margin of 17.41% and an operating margin 31.82%, which clearly outpaced direct competition brought on by both Merck (NYSE:MRK) and Pfizer (NYSE:PFE) by a fairly wide margin. It should be noted that MRK posted a profit margin of 13.93% and an operating margin of 22.97% and Pfizer posted a profit margin of 15.76% and an operating margin of 30.39%. If we examine the numbers a bit closer, we see that BMY outpaces MRK in terms of profit margin nearly 1.24 to 1, and in terms of operating margin 1.38 to 1. We should also note that BMY slightly outpaces PFE in terms of profit margin nearly 1.10 to 1, and in terms of operating margin 1.04 to 1.

Comparable Returns on Assets & Equities

Over the last four quarters, BMY has demonstrated very respectable returns on both assets and equities and if such returns can continue, this catalyst will certainly contribute to the growth of the company's stock. In the last 12 months, BMY has demonstrated a return on assets of 12.84% and a return on equity of 30.52%, which when compared to other competitors clearly outpaces both MRK and PFE. In the last 12 months MRK has demonstrated a return on assets of 6.56%% and a return on equity of 11.86%. On the other hand, PFE has demonstrated a return on assets of 6.51%% and a return on equity of 10.66%. If BMY can continue to demonstrate strong returns on both assets and equities, I see no reason why the stock can't trade 12% - 15% higher over the next 12-18 months.

Final Analysis

BMY, in my opinion, is one of the better companies within the healthcare, and more specifically, the drug maker sector. If the company can continue to outpace the competition, and more specifically direct competitors Merck and Pfizer, when it comes to both margins and returns, we could easily see BMY surpass the $40.00/share level. One of the key catalysts for BMY moving forward will be the performance (and notably the increase) of drug sales both domestically and internationally.

Disclosure: I am long BMY, PFE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.