Stock of the Week

Bristol Myers Squibb

December 6th 2019

Bristol Myers Squibb
NYSE Symbol: BMY
Industry: Drug maker
Price as of 12/2: $58.90  


The drug sector similar to the energy sector has underperformed the broader markets. Drug companies have been a target for politicians and the Presidential candidates ahead of the elections next year. However, many drug stocks have perked up as of late including this week's featured stock, Bristol Myers Squibb. Bristol's stock has struggled the last couple years down 15% since the February 2018 highs due to slowing growth and disappointing drug data including one of their cancer drugs, but a new acquisition of Celgene has reinvigorated the stock and their drug pipeline including more cancer drugs. The deal to merge with Celgene was expected to go through next year, but a surprise approval by the FDA allowed Bristol to merge the two companies in November.  Now that the deal has been consummated, Bristol has a catalyst to get the company growing once again.

With the merger completed, Bristol's earnings will jump 50% while sales will rise 75% next year. Based on 2020 guidance, Bristol currently trades for 9 times earnings and 3 times sales while also sporting a 2.76% dividend. Earnings and sales in 2021 will slow again so Bristol will have to rely on new drugs to keep this stock and company growing. Bristol bought three potential blockbuster drugs from Celgene, ozanimod for multiple sclerosis, liso-cel for lymphoma, and bb212 for multiple myeloma. All three drugs are looking for FDA approval by March of 2021. Bristol created a tracking stock (BMYRT) for these three drugs which at least one analyst is recommending to clients with a price target 50% above current levels.

Along with the blockbuster drugs, Bristol has 10 drugs in late-stage testing and six medicines that could soon launch. Bristol has 50 drugs in early and mid-stage testing. Of those, 21 are in oncology, an important and growing field.

In the meantime, Bristol will continue to be a cash flow machine. The pharmaceutical giant expects $45 billion in free cash flow within the next three years and $2.5 billion run-rate in cost synergies by 2022. After the merger with Celgene, Bristol announced a $7 billion share buyback plan.

 In the short term, the buyback and the jump in earnings and sales could help Bristol's stock keep moving higher. Bristol's stock would have to rise by 8% just to trade for 10 times earnings. Rival, Merck trades for 15 times earnings.  Longer term, the blockbuster drugs and the 50 drugs in early and mid-stage testing could give Bristol long term growth and a stock price that trades more in line with other blue-chip drug companies.