Is Pfizer’s 2x Price Rise Versus Bristol-Myers Squibb Justified?

by Trefis Team
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The stock price for Bristol-Myers Squibb’s stock (NYSE:BMY) is up by roughly 15% in the last few years (since Jan 2017), driven by the company’s increased market share in the anticoagulants market. In comparison, Pfizer (NYSE:PFE), one of the largest U.S. pharmaceutical companies in terms of market cap, has seen its stock grow by 30% during the same period. In other words, Pfizer’s stock grew 2x the rate of Bristol-Myers Squibb during the 3 year period. This comes despite the fact that Bristol-Myers Squibb’s revenue growth was much higher at 35%, compared to a decline of 2% for Pfizer. Though Pfizer’s margins were slightly ahead, (32.3% vs 30.7%), that doesn’t explain the difference.  Does it make sense that Pfizer would increase so much more than Bristol-Myers Squibb? We don’t think it does, and believe Bristol-Myers Squibb is likely a good investment at the moment compared to Pfizer, as investors seek the stability and dividends of healthcare stocks during increasingly uncertain times. Our dashboard, ‘Is Pfizer’s 2x Stock Price Growth Vs. Bristol-Myers Squibb Justified?‘, has the underlying numbers.

Fundamentals For Both Companies Are Strong, But Bristol-Myers Squibb’s Valuation And Outlook Is Attractive

Let’s look at the core business prospects of both companies a little more closely. Bristol-Myers Squibb is a large pharmaceuticals company, with multiple blockbuster drugs, including Opdivo and Eliquis, under its portfolio. The company completed the Celgene acquisition in Q4 last year, which has given it access to Revlimid, which alone is a $11 billion plus drug (annual sales). The company’s valuation has soared over the last few years, as investors sought the strong growth in its oncology drugs business and its Celgene acquisition, which has resulted in its late stage pipeline potential of roughly $18 billion in peak sales, and most of the drugs in the pipeline currently are courtesy of Celgene.

Pfizer is one of the largest pharmaceutical companies in the world, with presence in over 125 countries. The company provides drugs in several therapeutic areas, including cardiovascular, anti-infectious, oncology, and immunology, among others. Pfizer’s growth over the last few years has largely been led by its oncology drug, Ibrance, and Musculoskeletal drug, Xeljanz, along with strong growth in alliance revenues from Eliquis. There could be a couple of factors impacting Pfizer’s valuation, versus Bristol-Myers Squibb. Pfizer is in the midst of a restructuring, where it has de-consolidated its Consumer Healthcare business, and it is currently in the process of de-consolidating its mature drugs business. As such, Pfizer’s future growth is expected to be strong compared to historical years, where these two low-margin businesses were a drag on the earnings growth. Our interactive dashboard analysis on how Pfizer managed 35% stock growth despite revenue decline provides more details.

That said, we still believe Bristol-Myers Squibb’s business looks quite attractive compared to Pfizer, especially at the current valuation. Bristol-Myers Squibb trades at just 9.7x expected 2020 EPS of $6.25, compared to 12.9x for Pfizer’s expected EPS of $2.90. Bristol-Myers Squibb’s P/E Multiple has declined roughly 50% from 18.7x at the end of 2016 to 9.7x currently, vs. 8% growth for Pfizer’s P/E Multiple from 12.0x to 12.9x over the same period. Moreover, Bristol-Myers Squibb’s growth outlook could also improve with its strong late stage pipeline.

 

Looking for more pharmaceuticals insights? See After Allergan acquisition, is AbbVie a better buy compared to Merck?  and Why Johnson & Johnson looks undervalued at $145?

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