Bristol Myers Squibb Offers Growth With A Safe Dividend

Jun. 23, 2020 3:35 PM ETBristol-Myers Squibb Company (BMY)26 Comments
William Meyers profile picture
William Meyers
7.29K Followers

Summary

  • The acquisition of Celgene expanded the Bristol Myers pipeline.
  • Revenue growth will continue despite some patent expirations.
  • The dividend is safe and likely to be increased.

Bristol Myers Squibb (NYSE:BMY) is one of the world's largest pharmaceutical companies, with a current market cap of about $123 billion and annual sales running over $40 billion. It generates strong cash flow from operations and pays a substantial dividend, currently $0.45 per quarter or $1.80 per year, which works out to about 3.2% per year, depending on the exact price paid for a share. As much as I like the dividend, I believe the stock is undervalued because of its extensive drug candidate pipeline, strong sales growth of newer drugs, and ability to use cash to acquire cutting-edge drug candidates or the companies that discover them.

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I believe there are two main reasons Bristol is currently undervalued. One is that biotechnology investors are currently chasing COVID-19 related stocks. There is nothing wrong with that. The other is that sales of some of Bristol's older drugs are declining or will soon see generic or biosimilar competition. I will take a pass on the first issue, which should normalize over time. This article will address the second issue, but will then focus on the potential of the pipeline, including the components acquired with Celgene.

Drug portfolio turnover

Every pharmaceutical company that is in business long enough will see each of its commercial drugs become subject to generic or biosimilar competition. When investors and analysts do not project enough revenue growth of newer drugs, or potential from pipeline drugs, the foreseen drops in revenue from expiring patents will lead to lower revenue and profit projections. That leads to a lower stock price. Both Bristol and its recently acquired subdivision, Celgene, were subject to this. This is compounded by the reality that many drug candidates fail later stage, Phase 3 trials, so it is easier to predict the fall in older revenue than the ramp in new revenue. Also, in recent years

This article was written by

William Meyers profile picture
7.29K Followers
I provided stock and bond research and analysis to a small cap specialist investor, Lloyd Miller, from 2002 until his death in January 2018. For my own account I invest mainly in technology and biotechnology stocks. My technology and investment web site is openicon.com, where readers can view the notes I take to make decisions and to write articles for Seeking Alpha.

Disclosure: I am/we are long BMY, GILD. 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.

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