Should You Sell Eli Lilly To Buy Bristol-Myers Squibb?

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The pharmaceutical companies have not been immune to the current coronavirus crisis, although they have fared much better than the broader markets. While Bristol-Myers Squibb (NYSE:BMY) has declined -3.5% since early February, after the WHO declared the coronavirus a global health emergency, Eli Lilly (NYSE:LLY) stock has fared much better and it gained 10.6% over the same period. We believe that Bristol-Myers Squibb stock will likely outperform Eli Lilly’s stock over the coming months. Our conclusion is based on our detailed dashboard analysis, ‘After A -3.5% Move Is Bristol-Myers Squibb Company Expensive Or Cheap vs. Eli Lilly and Company?‘, wherein we compare trends in key metrics for the two pharmaceutical companies to determine their relative valuations under the current circumstances. We summarize parts of this analysis below.

Why Has Eli Lilly Outperformed Bristol-Myers Squibb Health Over Recent Weeks?

Eli Lilly posted a strong Q1 on April 23, due to stocking up of drugs both at patient and channel level, including Trulicity and Taltz. Also, the company is working with AbCellera Biologics, to develop a treatment for COVID-19, and it could start human trials as early as this month.  Bristol-Myers Squibb, on the other hand, is focused on gaining market share for its top selling drugs, Eliquis, Opdivo, and Revlimid. The company will report its Q1 earnings later this week, and it could also see a similar trend with drugs, such as Eliquis (an anticoagulant), seeing sales spike due to stocking up.

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Bristol-Myers Squibb’s current P/E multiple, based on 2019 earnings, has declined from 13.5x in 2019 to 12.8x currently, while Eli Lilly’s multiple has increased from 22.1x to about 25.4x. Eli Lilly’s multiple still appears high, considering that the company’s revenues could be at risk, with a normalized level of demand after the initial surge due to stocking up. Moreover, Eli Lilly’s P/E is still about 32% and 20% higher than the 19x and 21x multiple it traded at in 2017 and 2018 respectively, implying that the stock could be vulnerable. Even going beyond the current crisis, Eli Lilly’s reliance on older drugs (such as Humalog) is higher than Bristol-Myers Squibb. Both the companies don’t have any major product patent loss in the near term, and both of them have a promising late stage pipeline.

Overall, it’s likely that Bristol-Myers Squibb stock will outperform Eli Lilly going forward, which is yet to see a meaningful correction to its P/E multiple through the current crisis. We believe that the ground reality for Eli Lilly will likely be confirmed during its next couple of quarterly results, after the surge seen in demand for drugs over the recent months fade.

CORONAVIRUS CRISIS : Since early February, Bristol-Myers Squibb Company stock has moved -3.5% compared to 10.6% for Eli Lilly and Company.

  • Bristol-Myers Squibb’s stock has declined by about -3.5% since early February, compared to 10.6% growth for Eli Lilly, after the WHO declared a global health emergency relating to coronavirus.
  • Bristol-Myers Squibb’s stock grew 0.8% while Eli Lilly’s stock is up 8.6% since March 8th, as the U.S. cases accelerated.

HISTORICAL PERFORMANCE: From 2009-2019 Bristol-Myers Squibb Company stock has grown at 0.6x the rate of Eli Lilly and Company

  • Bristol-Myers Squibb Company stock went from $18.44 at the end of 2009 to $63.22 at the end of 2019, representing a change of 242.8%.
  • During the same time period, the Eli Lilly and Company went from $25.33 to $130.75 representing a change of 416.2%.
  • This implies that Bristol-Myers Squibb Company stock grew at 0.6x the rate of Eli Lilly and Company.

ANALYSIS: Is Bristol-Myers Squibb Company stock expensive based on a review of the fundamentals?

  • P/E Ratio: Based on trailing 2019 P/E ratios, BMY stock looks attractive compared to prior years and attractive compared to Eli Lilly and Company. Bristol-Myers Squibb Company 2019 trailing P/E ratio of 13.5x is 0.6x that of the 2019 Eli Lilly and Company P/E ratio of 22.1x. P/E Ratio is calculated based on year end market price and trailing Non-GAAP earnings. However, for 2020 P/E, we use 2019 earnings and current market price.
  • Historical Revenue Growth: Bristol-Myers Squibb Company revenue growth was 4x that of Eli Lilly between 2014 and 2019. Bristol-Myers Squibb Company 2014-19 annualized revenue growth of 10.5% is 4.0x that of the 2014-19 Eli Lilly annualized revenue growth rate of 2.6%.
  • Historical EPS Growth: Bristol-Myers Squibb’s EPS growth was better than that of Eli Lilly between 2014 and 2019. Bristol-Myers Squibb Company 2014-19 annualized Non-GAAP EPS growth of 16.8% is 1.4x that of the 2014-19 Eli Lilly annualized EPS growth rate of 12.2%.
  • Total Debt Comparisons: Bristol-Myers Squibb Company Total Debt has increased from $6.7 billion to $46.7 billion between 2016 and 2019. In comparison, Total Debt for Eli Lilly and Company has risen from $10.3 billion to $15.3 billion over the same period. Bristol-Myers Squibb’s debt jumped sharply in 2019, due to its acquisition of Celgene.

Do you know that oncology drugs is the largest segment, and accounts for roughly two-thirds of Bristol-Myers Squibb’s Revenues.

Our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread of the virus.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. Additionally, the complete set of coronavirus impact and timing analyses is available here.

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