Bristol-Myers Squibb (BMY) 23Q2 Update

23Q2 net revenue dipped 5.6% to $11.2 billion, more than expected, mostly on a faster sales decline for Revlimid, which has lost exclusivity.  Opdivo sales rose at the slowest YOY pace since the early pandemic.  Revenues from newly launched products grew 79% YOY and 19% sequentially, but the sales trajectory for Camzyos and Sotyktu remains disappointing.  GAAP diluted EPS of $0.99, was up 49% over 22Q2 and in line with my estimate of $1.00; but non-GAAP EPS of $1.75 fell 9.5% YOY and was below my estimate of $2.04.

Although 23Q2 GAAP net income increased by $652 million YOY, BMY’s core business profitability declined.  Gross profit fell $815 million, as gross margin decreased 270 bp to 73.4%, and operating expenses rose by $84 million or 260 bp to 48.4% of net revenue.  Operating cash flow (core EBITDA) fell by $899 million.

Management cut its 2023 revenue growth and earnings outlook.  It now anticipates a low single-digit drop in revenues (vs. +2% previously), GAAP earnings of $3.72-$4.02 (vs. $4.10-$4.40) and non-GAAP EPS of $7.35-$7.65 (vs. $7.95-$8.25).  Thus, I now project 2023 GAAP EPS of $3.88, down $0.29 from my previous forecast, and non-GAAP EPS of $7.50 (vs. $8.06).  For 2024, I expect GAAP EPS of $4.09, down $0.41, and non-GAAP EPS of $8.00, down $0.22.  This is the second consecutive cut in my 2024 earnings outlook.

My 2023 EPS forecast (and management’s guidance) implies a modest improvement in profit margins in 23H2 (from 23Q2 levels).  My 2024 forecast assumes no improvement in gross margin and only a small reduction in the operating expense ratio.  It also anticipates a steeper decline in Revlimid sales (than management’s guidance) and reasonably conservative assumptions for the rest of BMY’s product portfolio.

Based upon my revised outlook, I have reduced my price target from $78 to $70.  The new price target equates to a forward multiple of 17.0 times projected 2024 GAAP EPS of $4.17 (or 8.75 times projected non-GAAP EPS of $8.00).  It therefore anticipates modest multiple expansion from current forward valuation levels.  With the stock now at $61.23, the new price target represents a potential total return of 18%, including a 3.7% dividend yield.  Accordingly, I am maintaining my performance rating of “1” (Buy).

BMY’s stock has been in a well-defined downtrend since November.  There are as yet no signs that a bottom is in.  Once it does find a bottom, the stock may not rebound in earnest until quarterly results confirm management’s guidance, which could occur around the time that Christopher Boerner is installed as CEO in November. Its recently announced $4 billion accelerated share purchase agreement will be settled in 23Q4.

This is a summary of my recent report on Bristol-Myers Squibb Company (BMY), originally published on August 12, 2023. To obtain a copy of the full report, please reach out to me using the contact information provided below.

August 17, 2023

Stephen P. Percoco
Lark Research
839 Dewitt Street
Linden, New Jersey 07036
(908) 975-0250

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