Bristol-Myers Squibb: Initiating Coverage

Initiating Coverage with an Outperform Rating. Prospects Beyond 2022 are Favorable.

With the acquisitions of Celgene in 2019 and MyoKardia in 2020, BMS has substantially transformed its business and repositioned for growth.  Drugs added to the portfolio from the two acquisitions produced 40% of its total revenues in 2020.  The company has launched six new products since 2020, including two CAR-T immunotherapies, a class of treatments that has produced miraculous responses in fighting blood cancers.  It plans to launch two potential first-in-class treatments in 2022 that have good commercial potential.  BMS also has a broad early-to-mid stage pipeline with more than 50 new compounds in clinical development.

Although its long-term growth prospects are attractive, BMS’s financial performance will likely show little improvement in 2022, according to our projections.  The company will have to contend with a decline in revenues for some medicines that are losing exclusivity while its most promising product launches will still be in their early stages.  As a result, we believe that revenues and earnings will be up only slightly in 2022.

Despite positive long-term growth prospects, BMS’s common stock trades at just over 9 times projected 2021 non-GAAP earnings, well below its peer group average of 12-13 times. The discount reflects uncertainty about the company’s ability to deliver on its growth agenda, including perhaps concerns about the impact of loss of exclusivity (LOE).

We expect that the performance of its stock over the next 12-18 months will depend mostly upon the cadence of news about regulatory approvals and product launches.  There could also be volatility around the company’s financial performance, if growth stalls in 2022 as we expect.  Even so, if BMS delivers consistently on its growth targets and performance, the stock’s discount to peers should narrow over time.  Most of the multiple expansion that we anticipate should therefore occur after mid-2022, as the market begins to price in improved revenue and earnings growth for 2023 and beyond.

Our 6-12 month price target for BMS’s stock is $73, or 9.7 times projected 2022 non-GAAP earnings of $7.50.  If events play out as we anticipate, our follow-up 18-24 month price target may very well be $85-$90, based on a valuation multiple of 11 and 2023 earnings of ~$8.

The stock currently pays a dividend of $1.96 per share, which equates to a yield of 2.9% at the current quote.  Our projections assume that the company will generate significant free cash flow over the next few years, which should give it the capacity to raise the dividend going forward.

Note: This is a summary of our detailed report on Bristol-Myers Squibb Company dated July 31, 2021. Please contact us to obtain the full report.

August 6, 2021

Stephen P. Percoco
Lark Research
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© 2022 by Stephen P. Percoco, Lark Research.   All rights reserved.

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