Bristol Myers Squibb (NYSE:BMY) has taken the spotlight recently through news reports of Carl Ichan targeting the company as a takeover opportunity. The stock price has made a 20% rise since January 26th based on news, positive valuation, and being over sold in late 2016. With so much information flooding the internet about Bristol Myers it may be difficult to see through the shroud and come out with a decision to buy, sell, or hold the stock.
The Foundation For Discount Opportunity
July of 2016, Opdivo trail failures caused the company's stock to collapse more than 16%. Selling pressure stemmed from Opdivo's trial performance failures because the Opdivo drug alone made up 70% of Bristol Myers's market cap. Failure of Opdivo would be catastrophic for investors and the company. Along with Opdivo speculation, January 2017 Bristol Myers missed analyst earnings per share projections by ($0.03) reporting $.63 per share on their fourth quarter financials. News of the missed earnings plunged the stock down to a 52 week low of $46.01.
Seeing Through The Smoke
Although the dust has yet to settle around the Bristol Myers acquisition news, the company's fundamentals do tell an interesting story. Bristol Myers currently has a price to earnings ratio of 21.05, an annual dividend payout ratio of 58%, and a 200 day price moving average of $64.74. With a beta of .89, Bristol Myers is still a stable investment that offers investors steady dividend cash flows along with tremendous upside growth through an acquisition.
The company's annual revenue by product (see below) clearly indicates substantial growth which, even through trail failures, has contributed to increased revenue to their bottom line. What should stand out for long term investors is their exclusivity as well. Although some smaller product lines are nearing their loss of exclusivity, high growth lines such as Opdivo and Eliquis bring in 42% of product revenues and will maintain exclusivity for at least another five years, minimum. See annual report for table.
Although stock price fluctuation and test speculations portrayed Bristol Myers to be struggling, the company has experienced steady growth year over year for the past three years. Annual cash flows indicate a +200% year over year increase in net earnings since 2014 with 6% year over year dividend growth. Rarely will investors find an opportunity to purchase a sound company with growing earnings and dividends trading at a discount. Bristol Myers is that company now.
Bristol Myers Stock Rally & Growth Potential
After news of Bristol Myers being prey for an acquisition, many institutional investors have taken stake in the biopharma leader. Hedge funds such as Adage Capital Management ($448.5M), Renaissance Technologies ($381.2M), Appaloosa LP ($21.9M), and others have taken significant stakes in the company.(As reported on Insider Monkey) These large purchases are a large, concrete, contributing factor to the stock price rally. The other, more obvious, diver is the continuous news coverage and speculation of acquisition interest from Gilead Sciences (NASDAQ:GILD), Sanofi (NYSE: SNY), and other major industry leaders which was brought to the forefront by Carl Ichan's release. The positive sentiment was brought home when Zack's Investment Research upgraded Bristol Myers from a "hold" to a "buy" rating with a price target of $63.
Outside of the potential buyout, Bristol Myers will also see growth through sales of Eliquis and Opdivo. Eliquis sales which have previously risen over 80% can be expected to continue to grow as more news of favorable drug safety profiles are released. Eliquis in comparison to Xarelto and Pradaxa reduced bleeds 31% which outperformed all other drugs in the marketplace. Investors also have growth potential through the Opdivo drug. Lung cancer trials aside, Opdivo is approved to treat 11 different types of cancer by the FDA; the most recent being bladder cancer. Opdivo entering the bladder cancer market gives the company access to the projected $646 million market. With FDA approval for urothelial carcinoma, investors will see sustained earnings growth through the future.
Based on the previous, analyst reports, and the news, it is clear that, with current pricing, Bristol Myers is a buy. For many long term investors, Bristol Myers will continue to remain a hold and or purchasing opportunity for those seeking to increase their portfolio's position in biopharma. Looking to buy? Now is the time. Bristol Myers has cash, revenue, growing businesses, and revenue security through exclusivity rights. Not only are their current drugs outperforming the direct competition; they are now entering the bladder cancer market. Another positive aspect of the company is their continuous payout of dividends to their shareholders which is great for investors seeking cash and growth. In short, Bristol Myers very well could be the best biopharma stock to add to a portfolio in early 2017. With or without an acquisition, investors can find a low beta, high cash flow, moderate growth position in Bristol Myers.
Disclosure: I am/we are long BMY.
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.