Bristol Myers: Disciplined Investors Shall Be Rewarded

Bristol Myers: Disciplined Investors Shall Be Rewarded


Bristol Myers’ most recent Q3 results beat analyst estimates on both the top and bottom lines.

Shares of Bristol Myers are trading with a blended P/E of just 8.21x.

Bristol Myers announced a healthy 10.2% dividend increase.

Bristol Myers is a strong buy for 2022.

janiecbros/E+ via Getty Images I am a full-blooded value investor. My beliefs and mindset will not allow me to buy shares in companies that I find to be overvalued, no matter how high in quality that company may be. Furthermore, I fully understand that a quality stock may underperform the market for years, which can eventually wear down even the most seasoned investors. Yet, when a quality business continues to grow their earnings, as well as their dividend, at a steady pace, then mean reversion will eventually take place. When searching for a stock that meets this criteria, look no further than Bristol Myers Squibb ( BMY ). The Workshop:

Bristol Myers continues to operate in one key segment, biopharmaceuticals. The goal of BMY is to combine the scale, resources, and capabilities of a large pharmaceutical, with the speed and focus on innovation of a biotech company. BMY looks to discover unique compounds, develop these into safe, effective drugs, and then market them to the masses through doctors and hospitals. Over the past decade or so, BMY has chosen to divest much of its non-pharmaceutical divisions , in order to focus on branded specialty drugs, an area with strong pricing power. One of the main areas of study is immune-oncology, a form of cancer treatment which uses the power of the bodies own immune system to prevent, control, and eliminate cancer.

BMY relies heavily on patents to protect drugs from being manufactured by other companies. These patents only protect drugs exclusivity for so many years, before expiring and opening the door for generic competition. Therefore, BMY must continually replenish their pipeline with new compounds or find additional uses for existing drugs, in order to extend patents. Often times, BMY will rely on partnerships and acquisitions to bolster their drug pipeline.

BMY’s most recent two acquisitions consist of MyoKardia for $13.1B in cash, as well as Celgene for $74B. Through the Celgene acquisition , BMY inherited cancer drug Revlimid, currently their highest grossing drug. These acquisitions can prove to be a quick, albeit expensive, way to ensure that they will have a diverse set of proven drugs to continue producing revenues and fuel research and development. (Source: Statista) Performance:

Bristol Myers’ most recent Q3 results beat analysts’ estimates on both the top and bottom line. Revenues of $11.62B beat estimates by 100M and represented 10.2% Y/Y growth. Non-GAAP EPS of $2.00 beat estimates by $0.08 and was ahead of Q3 2020 by an impressive 22.6%.

Management has slightly raised the lower end of guidance for FY2021 EPS to $7.40-$7.55. This would equate to 15% to 17% growth over the previous year. If we take the mid-point of management’s FY 2021 EPS, this would mean that since 2016, Bristol Myers has managed to grow EPS from $2.83 to $7.58, or an astounding total of 268%. This is an impressive feat for any company, so obviously shares will have skyrocketed over this time frame. Right?

Wrong! First, let us review results on a year-to-date (YTD) basis, where Bristol Myers’ shares have shown a horrendous performance when compared to the market as a whole, measured by the SPDR SP 500 ETF ( SPY ). While the SPY is showing an impressive YTD return of 23.85%, BMY has actually declined by 0.94%. (Source: Seeking Alpha)

Things get worse when viewed over a five-year period, as Bristol Myers’ performance becomes even more appalling. During a period where SPY saw annualized returns of a whopping 16.47%, BMY only managed to return slightly higher than 4% annualized. (Source: FASTgraphs)

So how can I make a bullish case for a company that has so clearly lagged the market? Well, because I invest first and foremost in the underlying business, and in this case, BMY has continued to consistently grow both sales and earnings. Thus, when I am able to find a company with Bristol Myers’ growing fundamentals, the next step is to take a peek at the valuation. Valuation:

Let me just come right out and say it: Bristol Myers is cheap. With a closing price on Dec. 21 of $61.45, shares of Bristol Myers are trading with a blended P/E of just 8.21x. Essentially, investors are valuing shares as if the company will experience negative growth. However, […]

source Bristol Myers: Disciplined Investors Shall Be Rewarded

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