Bristol-Myers Squibb Weakness Offers Opportunity

Summary

• Bristol-Myers Squibb Company has seen its share price trend down as investors remain concerned about a loss of exclusivity.
• The company has a strong portfolio of assets, and it's worked hard to de-risk its growth opportunities, with 2025 revenue expected to be $10-15 billion risked.
• Bristol-Myers Squibb's revenue growth potential is strong, and with reduced debt, we expect the company will be able to drive substantial shareholder returns.
• The Retirement Forum members get exclusive access to our real-world portfolio. See all our investments here »

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Bristol-Myers Squibb Company (NYSE:BMY) is one of the largest pharmaceutical companies with a market capitalization of more than $130 billion. The company has a dividend yield of more than 3.5%, which combined with its impressive asset portfolio, should enable substantial long-term shareholder returns.

Bristol-Myers Squibb 1Q 2023 Performance

Bristol-Myers Squibb performed well in the 1Q, showing its asset strength.

Bristol-Myers Investor Presentation

The company's net sales for the quarter were $11.3 billion, with new product performance more than doubling YoY at just over $700 million. Global net sales decreased slightly, but in-line brands and new products increased high single-digits. The company earned $1.07 in GAAP EPS and $2.05 in non-GAAP EPS, with a single-digit non-GAAP P/E.

The company is continuing to target a GAAP P/E of 15, and half that for non-GAAP, showing its strength.

Bristol-Myers Squibb Catalysts

The company has a number of exciting catalysts that show its strength.

Bristol-Myers Investor Presentation

The company has a number of key milestones in 2023 including for some of the company's existing strong drugs. The company has initiated some Phase 3 programs. Opdivo sales are already annualized at $9+ billion for the first quarter. The drug is also one of the company's longest exclusivity drugs, with exclusivity lasting until 2027-2023.

That will help to protect the company's revenue for the long run.

Bristol-Myers Investor Presentation

There are concerns about the company's ability to replace its existing revenue as exclusivity is lost. However, the company's new drugs have more than doubled revenue YoY and they continue to grow. Some of these drugs have struggled recently with goals to expand indications, such as Reblozyl, but the overall program remains strong.

Bristol-Myers Squibb Growth

Going forward, the company has worked to improve both risk-adjusted and non-risk adjusted sales.

Bristol-Myers Investor Presentation

The company can't tell you for sure where sales are going to be in 2030. However, each year, with continued milestones, it can work to de-risk drugs. Some drugs that already have strong risked sales forecasts, such as Reblozyl, Camzyos, and Breyanzi, are much less risky in our view, and the company has already de-risked many milestones.

The company's $11.5 billion risk-adjusted sales target for 2025 is solid and if the company can continue growth, it's a valuable investment at current levels. For perspective, current annualized revenue is $45 billion, so being able to replace almost 60% of that with non-risk adjusted revenue is exciting to see. However, as the company states, until 2030, it's a risk.

Bristol-Myers Balance Sheet

The company continues to have a strong balance sheet that it's improved since its Celgene acquisition.

Bristol-Myers Investor Presentation

The company's cash flow from operations remains strong at roughly $13 billion annualized. The company's net debt has dropped to $28.5 billion, with a robust cash position, and the company managed to repay another $1.6 billion in debt in the 1st quarter. The company has continued to increase what's already a strong dividend.

The company has $7 billion in remaining share repurchase authorization, just over 5% of its market cap. Of course, we like to always see companies that aggressively repurchase shares. Overall, the company's cash flow is an almost double-digit yield that can support significant shareholder returns. Regardless of how the company spends its cash, the returns can be strong.

Additionally, the company now has the financial position to comfortably use debt to make additional acquisitions. However, it's worth noting that at higher interest rates, using debt to make an acquisition is less than ideal.

Thesis Risk

The largest risk to the Bristol-Myers Squibb Company thesis is two-fold. The first is the company's portfolio and revenues remain centered around a few key drugs such as Revlimid that are seeing revenues drop from a loss of exclusivity. The second is continued risk in the company's potential portfolio of drugs and its work to de-risk them. Projects could fail substantially, increasing the company's future ability to continue driving returns.

Conclusion

Bristol-Myers Squibb Company faces a loss of exclusivity for some major drugs. That's true for a number of different major pharmaceutical companies today that are earning massive revenue from drugs that come into market over the past decade. However, Bristol-Myers Squibb Company has worked hard to build a portfolio of drugs to replace it.

Of course, drug development is a risky business and there's no guarantee that the company's portfolio works out. However, it's worked hard to de-risk sales as much as it can. It now forecasts de-risked revenue of $10-15 billion by 2025 and expects to be able to potentially double that on a risked business by the end of the decade. That shows the company's overall strength.

As a result, we recommend investing in Bristol-Myers Squibb Company.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of BMY either through stock ownership, options, or other derivatives. 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.

Comments

[Tom246]

The stock is acting like the patent loss of Eliquis and Optivo will be too much for the new revenue of the slew of recently approved drugs.
That thinking IMO is a big mistake

[charged]

In the last twelve months, the biggest single sale by an insider was when the Chairman of the Board & CEO, Giovanni Caforio, sold US$18m worth of shares at a price of US$74.65 per share….listen to his hype as he fills his wallet with cash….he can buy again at the bottom.

[Mktneutralhedger]

@charged he's leaving the company on Nov 1

[charged]

@Mktneutralhedger saved himself 15% on 18 million…did himself well.

[To Drip]

Personal opinions on PFE or BMY? Of course you can have both but at todays price for a long term hold.

[ndardick]

I recently added a small amount of BMY in our concentrated portfolio of only 26 stocks to supplement other healthcare investments including CVS and PFE, but I am not convinced that BMY has as much appreciation potential as the other two for many of the reasons you enumerate.

[sickkat3]

I sold BMY after a run-up but it looks like a good time to take another look. Thanks for calling the stock to my attention once again.