What Has Led Bristol-Myers Squibb’s Stock To Fall More Than 35% Over The Last 3 Years?

Bristol-Myers Squibb’s (NYSE:BMY) stock price has fallen by over 35% over the last three years, despite a growth in revenues, margins, and earnings. The decline can be attributed only to contraction in the price to earnings multiple. In this note we discuss the factors that led to the stock price fall. You can look at our interactive dashboard analysis ~ Why Did Bristol-Myers Squibb’s Stock Decline 35% Over The Last Three Years? ~ for more details. In addition, you can see more of Healthcare Data here.

We break down the change in Bristol-Myers Squibb’s stock into 4 factors: Bristol-Myers Squibb’s Stock Price = (Revenue x Margins ÷ No. of Shares) x P/E Multiple

• Total revenue will likely increase by 22.2% to $23.7 billion in 2019 from $19.5 billion in 2016.
• Adjusted net income margin will likely grow by 403 bps to an estimated 28.5% in 2019 from 24.5% in 2016.
• Price to earnings multiple declined by over 50% to an estimated 11x as of end of H1 2019, based on expected full year 2019 earnings.

#1. Price To Earnings Multiple for Bristol-Myers Squibb saw a contraction of over 50% from 26x in 2016 to 11x in 2019 (end of Q2), and this was the key factor that led to such a decline in the stock price.

• Bristol-Myers Squibb’s price to earnings multiple has declined from 26x in 2016 to 11x in 2019, based on 2019 expected earnings.
• The decline in multiple can partly be attributed to better performance of its competitor Merck’s oncology drug – Keytruda – in the recent past, when compared to Bristol-Myers Squibb’s Opdivo, which has seen its sales growth rate slowing in the recent quarters.
• The fall in stock price in 2019 can also be attributed to Bristol-Myers Squibb’s plans to acquire Celgene in a deal, which has worried some of the investors.

#2. While the earnings multiple declined on one hand, the revenues on the other hand could grow 22% from 2016 to 2019. The biggest change in revenue is the company’s cardiovascular drugs’ sales, which could grow >130%, while the virology drugs’ sales could decline by 75% during the same period.

• Bristol-Myers Squibb generates its revenues from sales of pharmaceutical drugs for various therapeutic areas, including cardiovascular, oncology, and immunology, among others. Oncology revenue grew from $6.8 billion in 2016 to $10.3 billion in 2018, and an estimated $10.9 billion in 2019. The segment accounted for 45% of the company’s total sales in 2018.
• Cardiovascular revenue grew from $3.3 billion in 2016 to $6.4 billion in 2018, and an estimated $7.8 billion in 2019. The segment accounted for 28% of the company’s total sales in 2018.
• Immunology revenue grew from $2.3 billion in 2016 to $2.7 billion in 2018, and an estimated $2.4 billion in 2019, primarily due to the U.S. loss of market exclusivity for Orencia, which could impact the drugs’ sales
• Mature products & other revenue have been on a decline over the past few years. The figure declined from $2.3 billion in 2016 to $1.6 billion in 2018, and an estimated $1.4 billion in 2019.
• Virology drugs saw massive decline from $4.7 billion in 2016 to $1.5 billion in 2018, and an estimated $1.2 billion in 2019. This can be attributed to patent expirations of Sustiva, Baraclude, and Reyataz over the last few years.

#3. Adjusted net income grew along with Bristol-Myers Squibb’s revenues from 2016 – 2018, led by steady growth in margin, and the trend will likely continue in 2019.

• Bristol-Myers Squibb’s adjusted net income grew from $4.8 billion in 2016 to $6.5 billion in 2018, and an estimated $6.8 billion in 2019.
• This can be attributed to higher revenues and growth in adjusted net income margin.
• Adjusted net income margin grew from 24.5% in 2016 to around 29% in 2018, and 2019E.

#3.1 Operating costs could grow from $13.5 billion in 2016 to $17.3 billion in 2019.

• COGS as % of revenue grew from 25.5% in 2016 to 29.0% in 2018, and 2019E.
• R&D as % of revenue grew from 25.4% in 2016 to 28.1% in 2018 and 2019E.
• SG&A as % of revenue declined from 25.3% in 2016 to 20.2% in 2018, and an estimated 20.0% in 2019.
• Other operating expenses as % of revenue declined from -6.6% in 2016 to around 4.0% in 2018 and 2019E.

#3.2 Adjusted EPS has also seen steady growth, led by margin improvement and lower share count.

• Adjusted EPS grew from $2.83 in 2016 to $3.98 in 2018, and an estimated $4.15 in 2019.
• Shares outstanding declined from 1.68 billion in 2016 to 1.64 billion in 2018, and an estimated 1.63 billion in 2019.

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