Should You Pick Bristol Myers Squibb Stock At $50 After A Solid Q2 Beat?

Bristol Myers Squibb (NYSE: BMY) recently reported its Q2 results, with revenues and earnings exceeding our estimates. The company reported revenue of $12.2 billion and adjusted earnings of $2.07 per share, compared to our estimates of $11.6 billion in sales and $1.65 profit per share. BMY stock has risen 15% in a week, amid its solid Q2 results. After its recent rise, we think BMY stock has little 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 decline of 15% from levels of $60 in early January 2021 to around $50 now, vs. an increase of about 45% for the S&P 500 over this 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 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 little room for growth. We estimate Bristol Myers Squibb’s Valuation to be $53 per share, slightly higher than its current levels of around $50. Our forecast is based on a valuation multiple of 2.5x revenues, slightly lower than the 2.9x 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 and an increased competition for Revlimid. Bristol Myers Squibb recorded a one-time charge of $12.1 billion for the acquisition of Karuna in Q1’24, and expects its full-year earnings to fall to $0.75 per share at the mid-point of the guided range, compared to $7.51 earnings per share it reported in 2023.

Bristol Myers Squibb’s revenue of $12.2 billion in Q2 was up 9% 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, 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 operating margin expanded by 320 bps y-o-y to 41.1% in Q2’24, partly due to product mix and a slower growth in adjusted SG&A and R&D expenses. This resulted in the company’s bottom-line surging to $2.07 on an adjusted basis, compared to the $1.75 figure seen in the prior-year quarter. Looking forward, the company expects its 2024 sales to rise at the higher end of low single-digits and its adjusted earnings to be in the range of $0.60 and $0.90, reflecting an upward revision from its prior guidance of $0.40 and $0.70 per share.

Overall, Bristol Myers Squibb posted a solid Q2. Although there are near-term headwinds for Bristol Myers Squibb, primarily for Revlimid, its long-term growth prospects look robust, with its growth portfolio expected to see a significant growth 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 little 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 7/29/2024
[2] Cumulative total returns since the end of 2016

Invest with Trefis Market-Beating Portfolios
See all Trefis Price Estimates