Should You Pick Bristol Myers Squibb Stock At $45?

Bristol Myers Squibb (NYSE: BMY) recently reported its Q1 results, with revenues and earnings above the street estimates. The company reported revenue of $11.9 billion and an adjusted loss of $4.40 per share, compared to the consensus estimates of $11.5 billion in sales and $4.44 loss per share. Despite a Q1 beat, BMY stock corrected nearly 10% due to a lower than expected outlook for the full-year. After its recent fall, we think BMY stock has some room for growth. In this note, we discuss Bristol Myers Squibb’s stock performance, key takeaways from its recent results, and valuation.

Firstly, let us look at Bristol Myers Squibb’s stock performance in recent years. BMY stock has faced a notable decline of 25% from levels of $60 in early January 2021 to around $45 now, vs. an increase of about 35% for the S&P 500 over this roughly three-year period. However, the decrease in BMY stock has been far from consistent. Returns for the stock were 1% in 2021, 15% in 2022, and -29% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that BMY underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector including LLY, UNH, and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could BMY face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a recovery?  From a valuation perspective, BMY stock looks like it has some room for growth? We estimate Bristol Myers Squibb’s Valuation to be $50 per share, reflecting over 10% upside from its current levels of $45. Our forecast is based on a valuation multiple of 2.3x revenues, slightly lower than the 2.8x average over the last three years. A slight decline in valuation multiple for Bristol Myers Squibb seems justified in our view, given a significant expected dip in 2024 earnings.

Bristol Myers Squibb’s revenue of $11.9 billion in Q1 was up 5% y-o-y, as lower sales of Revlimid were more than offset by higher sales of Eliquis, Reblozyl and Opdualag. While the company expects Revlimid sales to continue to erode sharply, some of its newer drugs, such as Camzyos, Sotyktu, and Opdualag, are expected to garner sales of over $1 billion each by 2026.

Bristol Myers Squibb’s adjusted gross margin declined by 230 bps y-o-y to 77.8% in Q1’24, partly due to product mix. Bristol Myers Squibb recorded a one-time charge of $12.1 billion for the acquisition of Karuna. This resulted in the company’s bottom-line plunging to a loss of $4.40 on an adjusted basis, compared to earnings of $2.05 per share in the prior-year quarter.

Looking forward, the company expects its 2024 sales to rise in the low single-digits and its adjusted earnings to be in the range of $0.40 and $0.70, reflecting a significant cut from its prior guidance of $7.10 and $7.40 per share. This can be attributed to the charges related to the Karuna acquisition.

Although there are near-term headwinds for Bristol Myers Squibb, its long-term growth prospects look robust, with its newer drugs expected to turn into blockbuster drugs over the coming years. The company should be able to expand its pipeline through its new acquisitions, including Mirati, Karuna, and RayzeBio.

While BMY stock looks like it has some room for growth, it is helpful to see how Bristol Myers Squibb’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

[1] Returns as of 4/30/2024
[2] Cumulative total returns since the end of 2016

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