Is Bristol Myers Squibb A Better Bet Than Amgen?

Bristol Myers Squibb’s stock (NYSE:BMY) has declined 2% since early February after the WHO declared the coronavirus a global health emergency, while Amgen stock (NASDAQ:AMGN) has fared much better and gained 19% of its value. The spread of Covid-19 in various parts of the world has had a negative impact on the pharmaceuticals industry worldwide, due to the postponement of elective surgeries and hospital visits for non-emergency cases, resulting in lower prescriptions issued. This will likely have an impact on the business of both the companies. That said, we believe Bristol Myers Squibb will likely fare better than Amgen because of its current valuation, and the recent Celgene acquisition, which has expanded its drugs portfolio and pipeline, while Amgen bets on its new drugs for future growth.

Our conclusion is based on our detailed dashboard analysis, ‘Is Bristol Myers Squibb Expensive Or Cheap vs. Amgen?‘, wherein we compare trends in key metrics for the two pharmaceutical companies over the years to determine their relative valuations under the current circumstances. We summarize parts of this analysis below.

Why Bristol Myers Squibb Is Undervalued Compared To Amgen?

Amgen’s PE based on non-GAAP 2019 earnings has expanded from 16.0x to 17.1x. The growth in Amgen’s multiple can be attributed to its strong Q1 results, with new drugs driving the revenue growth. Looking back, Amgen was able to grow its revenues by a mere 2% over the last 2 years. Its major drug, Enbrel, saw a 3.8% decline in sales over the last 2 years to $5.2 billion in 2019, while its second largest drug, Neulasta, fared much worse with 28% decline in 2019 alone, as it faces biosimilar competition. But Q1 2020 was different for Amgen, as new drugs, including Otezla and Repatha came into focus. Otezla is a newly acquired drug for Amgen, and it garnered sales of $479 million in Q1, while its peak is estimated to top $3 billion. These new drugs helped the company post a strong 11% top line growth during the quarter.

Though Bristol Myers Squibb’s PE multiple (based on non-GAAP 2019 earnings) has remained around the 13x mark, it appears lower compared to the levels seen over the past few years, and lower compared to that of Amgen. Looking at fundamentals, Bristol Myers Squibb’s average annualized revenue and earnings growth was around 2x that of Amgen. The company’s drugs portfolio includes multiple blockbuster drugs, including Opdivo and Eliquis. Note that Eliquis has thus far been able to add over $1 billion in incremental sales each year since its launch. With the Celgene acquisition in Q4 last year, the company now has access to Revlimid, which alone is a $11 billion plus drug (annual sales). Additionally, the acquisition has resulted in a strong pipeline of over $18 billion in potential peak sales for Bristol Myers Squibb, according to our estimates.

Overall, Bristol Myers Squibb’s stock looks like it can offer significant upside from the current levels compared to Amgen. Not only has it posted stronger revenues and earnings growth historically, it is poised to see continued strong growth over the coming years, led by Celgene’s portfolio and pipeline, along with continued market share gains for Eliquis. Additionally, its current valuation looks attractive compared to Amgen. In fact, we estimate Bristol Myers Squibb’s valuation to be $81 per share, reflecting a 35% premium to the current stock price.

While Bristol Myers Squibb currently looks like a better investment option compared to Amgen for the long run, which S&P 500 component stocks have the best chance of outperforming the benchmark index? Our 5 In the S&P 500 That’ll Beat The Index: TWTR, ISRG, NFLX, NOW, V look promising.

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