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Bristol Myers Stock Rises 16% in 3 Months: Buy, Sell or Hold?
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Bristol Myers Squibb Company (BMY - Free Report) is experiencing a good run of late after touching a 52-week low of $39.35 on July 5. This short rally has given anxious investors a ray of hope. The biotech giant has been facing a few challenges for quite some time now.
Shares of BMY have risen 16.2% in the past three months compared with the industry’s growth of 3.8%. The stock has also outperformed the sector and the S&P 500 during this time frame.
Much of this outperformance can be attributed to the company’s better-than-expected second-quarter results in late July. The strong performance of newer drugs, along with consistent growth in sales of immuno-oncology drug Opdivo, has enabled the company to combat the slowdown in sales of other top drugs. Investors also cheered the increase in annual earnings guidance when BMY reported second-quarter results.
BMY’s newer drugs like Opdualag, Reblozyl and Breyanzi have put up a good performance to stabilize its revenue base in the face of generic competition for its legacy drugs. Thalassemia drug Reblozyl, for which BMY has a collaboration agreement with Merck (MRK - Free Report) , has put up a stellar performance since its approval. The drug should contribute significantly to Bristol Myers’ top line in the coming quarters.
Another important drug in BMY’s portfolio is the oncology drug Opdualag, whose robust sales have fueled the company’s top line. Bristol Myers is looking to expand Opdualag’s label and a potential approval should provide a significant boost. Sales of Breyanzi continue to gain traction from the approval of recent new indications and expanded manufacturing capacity.
Bristol Myers is also looking to counter generic competition for its key drugs through strategic acquisitions and subsequent addition of new drugs, which will likely generate an incremental stream of revenues.
The acquisition of Karuna Therapeutics added KarXT (xanomeline-trospium) to its pipeline. The candidate is currently under review in the United States for treating schizophrenia in adults, with a target action date of Sept. 26, 2024. A potential approval should diversify BMY’s product portfolio, given the prospects of the targeted market.
Challenges for Older Drugs
While these new drugs drive growth, one of BMY’s top drugs, Revlimid (indicated for multiple myeloma), is facing generic competition, which has adversely impacted the top line.
Blood thinner medicine Eliquis, for which BMY has a worldwide co-development and co-commercialization agreement with pharma giant Pfizer (PFE - Free Report) , is the biggest contributor to the top line. An upside in Eliquis sales in the second quarter helped BMY beat on revenues in the second quarter. Opdivo, too, maintained momentum on the back of consistent label expansions.
However, Eliquis is slated to face generics later in the decade and Opdivo might face a slowdown as core indications mature.
A major chunk of the company’s revenues comes from these three drugs. In the first half of 2024, Eliquis, Opdivo and Revlimid contributed nearly 61% to BMY’s total sales of $24.1 billion. Hence, it is going to be a daunting task for the company to maintain revenue growth in the face of generic competition for these drugs.
Cost-Cutting Measures Should Boost Earnings
In April 2024, BMY announced a strategic cost-reduction plan, which should result in approximately $1.5 billion in savings by the end of 2025. The company will focus on investing in key growth brands and optimizing operations across the organization. BMY is already progressing with this plan and is on track to achieve its targeted savings.
BMY's High Debt Ratio Worrisome
While BMY’s strategy of acquiring companies with promising drugs/candidates like other pharma/biotech giants is encouraging, the company has undertaken colossal debt to finance these acquisitions. As of June 30, 2024, Bristol Myers’ total debt-to-total capital ratio was a staggering 75.4%. This is concerning. The company had cash and equivalents of $7 billion and a long-term debt of $48.8 billion as of the aforementioned date.
Valuation
From a price perspective, even after this short rally, BMY is currently tilting toward the low end of the 52-week range and still quite lower than its all-time in November 2022.
Going by the price/sales ratio, BMY’s shares currently trade at 2.14x forward sales, lower than its mean of 3.05x and 7.43x for the large cap pharma industry.
Image Source: Zacks Investment Research
Estimate Movement
The Zacks Consensus Estimate for 2024 earnings per share (EPS) has gone up to $0.77 from $0.55 over the past 60 days after the company raised its annual forecast.
It’s worth noting that the annual earnings estimate has taken a massive hit due to acquisition-related expenses in 2024.
Image Source: Zacks Investment Research
Conclusion
While large biotech companies are generally considered safe havens for investors interested in this sector, we would advise them to wait as of now before turning optimistic. Although the recent rally raises hopes of a turnaround, BMY still has an uphill task at hand, and it remains to be seen if this rebound is sustainable.
Newer drugs pave the way for growth, but there is a long way to go for this biotech goliath. For investors already owning the stock, staying invested will be a prudent move, given the levels at which the stock is trading. BMY has been consistently paying out and increasing dividends. The current yield of 4.87% is quite attractive.
Image: Shutterstock
Bristol Myers Stock Rises 16% in 3 Months: Buy, Sell or Hold?
Bristol Myers Squibb Company (BMY - Free Report) is experiencing a good run of late after touching a 52-week low of $39.35 on July 5. This short rally has given anxious investors a ray of hope. The biotech giant has been facing a few challenges for quite some time now.
Shares of BMY have risen 16.2% in the past three months compared with the industry’s growth of 3.8%. The stock has also outperformed the sector and the S&P 500 during this time frame.
Much of this outperformance can be attributed to the company’s better-than-expected second-quarter results in late July. The strong performance of newer drugs, along with consistent growth in sales of immuno-oncology drug Opdivo, has enabled the company to combat the slowdown in sales of other top drugs. Investors also cheered the increase in annual earnings guidance when BMY reported second-quarter results.
Bristol Myers Outperforms Industry, Sector & S&P 500
Image Source: Zacks Investment Research
Newer Drugs Boost BMY's Growth
BMY’s newer drugs like Opdualag, Reblozyl and Breyanzi have put up a good performance to stabilize its revenue base in the face of generic competition for its legacy drugs. Thalassemia drug Reblozyl, for which BMY has a collaboration agreement with Merck (MRK - Free Report) , has put up a stellar performance since its approval. The drug should contribute significantly to Bristol Myers’ top line in the coming quarters.
Another important drug in BMY’s portfolio is the oncology drug Opdualag, whose robust sales have fueled the company’s top line. Bristol Myers is looking to expand Opdualag’s label and a potential approval should provide a significant boost. Sales of Breyanzi continue to gain traction from the approval of recent new indications and expanded manufacturing capacity.
Bristol Myers is also looking to counter generic competition for its key drugs through strategic acquisitions and subsequent addition of new drugs, which will likely generate an incremental stream of revenues.
The acquisition of Karuna Therapeutics added KarXT (xanomeline-trospium) to its pipeline. The candidate is currently under review in the United States for treating schizophrenia in adults, with a target action date of Sept. 26, 2024. A potential approval should diversify BMY’s product portfolio, given the prospects of the targeted market.
Challenges for Older Drugs
While these new drugs drive growth, one of BMY’s top drugs, Revlimid (indicated for multiple myeloma), is facing generic competition, which has adversely impacted the top line.
Blood thinner medicine Eliquis, for which BMY has a worldwide co-development and co-commercialization agreement with pharma giant Pfizer (PFE - Free Report) , is the biggest contributor to the top line. An upside in Eliquis sales in the second quarter helped BMY beat on revenues in the second quarter. Opdivo, too, maintained momentum on the back of consistent label expansions.
However, Eliquis is slated to face generics later in the decade and Opdivo might face a slowdown as core indications mature.
A major chunk of the company’s revenues comes from these three drugs. In the first half of 2024, Eliquis, Opdivo and Revlimid contributed nearly 61% to BMY’s total sales of $24.1 billion. Hence, it is going to be a daunting task for the company to maintain revenue growth in the face of generic competition for these drugs.
Cost-Cutting Measures Should Boost Earnings
In April 2024, BMY announced a strategic cost-reduction plan, which should result in approximately $1.5 billion in savings by the end of 2025. The company will focus on investing in key growth brands and optimizing operations across the organization. BMY is already progressing with this plan and is on track to achieve its targeted savings.
BMY's High Debt Ratio Worrisome
While BMY’s strategy of acquiring companies with promising drugs/candidates like other pharma/biotech giants is encouraging, the company has undertaken colossal debt to finance these acquisitions. As of June 30, 2024, Bristol Myers’ total debt-to-total capital ratio was a staggering 75.4%. This is concerning. The company had cash and equivalents of $7 billion and a long-term debt of $48.8 billion as of the aforementioned date.
Valuation
From a price perspective, even after this short rally, BMY is currently tilting toward the low end of the 52-week range and still quite lower than its all-time in November 2022.
Going by the price/sales ratio, BMY’s shares currently trade at 2.14x forward sales, lower than its mean of 3.05x and 7.43x for the large cap pharma industry.
Image Source: Zacks Investment Research
Estimate Movement
The Zacks Consensus Estimate for 2024 earnings per share (EPS) has gone up to $0.77 from $0.55 over the past 60 days after the company raised its annual forecast.
It’s worth noting that the annual earnings estimate has taken a massive hit due to acquisition-related expenses in 2024.
Image Source: Zacks Investment Research
Conclusion
While large biotech companies are generally considered safe havens for investors interested in this sector, we would advise them to wait as of now before turning optimistic. Although the recent rally raises hopes of a turnaround, BMY still has an uphill task at hand, and it remains to be seen if this rebound is sustainable.
Newer drugs pave the way for growth, but there is a long way to go for this biotech goliath. For investors already owning the stock, staying invested will be a prudent move, given the levels at which the stock is trading. BMY has been consistently paying out and increasing dividends. The current yield of 4.87% is quite attractive.
BMY currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.