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Leigh Baldwin & Co.

112 Albany Street, Cazenovia, NY 13035 | Phone: (315) 655-2964 Toll Free: 1-800-659-8044

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Stock of the Week

Bristol Myers Squibb

May 14th 2010 Bristol-Myers Squibb
NYSE Symbol: BMY
Industry: biopharmaceutical
Price as of 5/14: $23.56

Last week took us on a wild ride with the Dow falling 998 points on Thursday, with 600 points of that within 25 minutes. The markets quickly recovered, but the sell off left most of us bewildered. Unfortunately, many investors do not trust the markets and last week's action will not help things. The sell off and the recovery occurred so fast that you're left wondering did it really happen? This week the averages quieted down, only to sell off once again at the end of the week. Many questions remain unanswered, but it seems certain that we're in the midst of a correction. To ease investors fears this week, we'll feature a blue chip drug company that doesn't have to worry about the market fluctuations. The stock of the week is Bristol Myers Squibb. Bristol's medicines help millions of people in their fight against cancer, cardiovascular disease, diabetes, hepatitis B, HIV/AIDS, rheumatoid arthritis and psychiatric disorders. The big concern regarding Bristol and most drug companies are patent expirations and the new healthcare reform. Bristol doesn't have any patent issues in the short term, but the health-care reform will bring down profits. However, the recent earnings indicate that investors and analyst fears are overblown. Just last week Bristol announced a $3 billion share buyback, yet the stock remains very attractively priced with a dividend yield of 5.3%.
Bristol reported double-digit growth in first-quarter sales and profits, beating Wall Street expectations. The maker of blockbuster blood thinner Plavix posted a very healthy improvement in first-quarter profits, which jumped 16% to $743 million, or 43 cents per share, from $638 million or 32 cents per share, in the first quarter of 2009. Revenue rose 11% to $4.81 billion, just above estimates of $4.74 billion. Their largest drug, Plavix, jointly marketed with French partner Sanofi-Aventis SA, produced revenue of $1.67 billion in the quarter, up 16%. Six other medicines at Bristol saw sales jump 15% or more surpassing expectations. One big disappointment came from the company's highly touted new Type 2 diabetes drug, Onglyza which produced sales of just $10 million in the quarter. Regarding the healthcare reform, sales and profits were reduced by 3 cents because of changes required in the health care overhaul enacted in late March and retroactive for the whole quarter. The company said it expects additional negative impact this year and next year for discounts in the health law. The company was initially expecting a hit of 12 cents a share for the full year, but Bristol-Myers is only reducing its earnings-per-share forecast by 5 cents, to a range of $2.10 to $2.20, excluding one-time charges. It had forecast a range of $2.15 to $2.25 in January. The company believes it can absorb the additional earnings impact due to the strength of the overall business and unspecified cost cuts. Management indicated that the healthcare reform does affect their results, but does not change the underlying strength of the business or the focus of their strategy.
The concerns about the healthcare reform has kept the stock cheap. Currently the stock trades for 11 times earnings, 10 times next years earnings, 2.1 times sales, and 2.7 times book value. Bristol won't go ex-dividend again until July, but the yield of 5.3% is one of the best in the S&P 500. Bristol is not a growth stock, but more of a conservative dividend paying investment in these choppy waters.