Should You Buy Bristol Myers Squibb Stock At $63?

by Trefis Team
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We believe that Bristol Myers Squibb stock (NYSE: BMY) is a good buying opportunity at the present time. BMY stock trades near $63 currently and it is, in fact, down 6% from its pre-Covid high of $67 in February 2020 – just before the coronavirus pandemic hit the world. BMY stock has rallied over 35% since its March lows of $46, compared to a 63% gains for S&P 500. The underperformance can partly be attributed to the weaker than estimated sales of its blockbuster drug – Opdivo. That said, the company’s overall Q3 performance was better than street estimates, and now with economies opening up, the company will likely see improved sales growth and margin expansion, driving the stock higher from here, in our view. Our conclusion is based on our comparative analysis of Bristol Myers Squibb stock performance during the current financial crisis with that during the 2008 recession in our interactive dashboard.

2020 Coronavirus Crisis

Timeline of 2020 Crisis So Far:

  • 12/12/2019: Coronavirus cases first reported in China
  • 1/31/2020: WHO declares a global health emergency.
  • 2/19/2020: Signs of effective containment in China and hopes of monetary easing by major central banks helps S&P 500 reach a record high
  • 3/23/2020: S&P 500 drops 34% from the peak level seen on Feb 19, as COVID-19 cases accelerate outside China. Doesn’t help that oil prices crash in mid-March amid Saudi-led price war
  • Since 3/24/2020: S&P 500 recovers 62% from the lows seen on Mar 23, as the Fed’s multi-billion dollar stimulus package suppresses near-term survival anxiety and infuses liquidity into the system.

In contrast, here is how BMY stock and the broader market fared during the 2007-08 crisis

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

BMY and S&P 500 Performance Over 2007-08 Financial Crisis

BMY stock declined from levels of about $29 in September 2007 (pre-crisis peak) to levels of $18 in March 2009 (as the markets bottomed out), implying BMY stock lost 37%. It recovered post the 2008 crisis, rallying 37% to levels of $25 by January 2010. In comparison, the S&P 500 Index saw a decline of 51% from its peak in September 2007 to its bottom in March 2009, followed by a sharp recovery of 48% by January 2010.

Bristol Myers Squibb Company Fundamentals Over Recent Years Have Been Strong

Bristol Myers Squibb’s revenues increased from $19.4 billion in 2016 to $26.1 billion in 2019, due to market share gains for its anticoagulant – Eliquis, along with the partial contribution of Celgene, which was acquired in 2019. The company has also seen its Net Margins expand from 24.5% to 30.7% on an adjusted basis, aiding its EPS, which grew from $2.83 to $4.69 over the same period. More recently,  Bristol Myers Squibb garnered over $10.5 billion in sales, reflecting 75% growth y-o-y in Q3 2020. The growth primarily reflects the impact of the Celgene merger, along with continued uptick in Eliquis, which grew 9% to $2.1 billion, while Opdivo saw a decline of 2% with sales of $1.8 billion during the quarter. The slowdown in Opdivo’s sales growth was anticipated, amid Merck’s Keytruda gaining market share. Looking at the bottom line, the company reported adjusted EPS of $1.63, reflecting 39% y-o-y growth.

Does Bristol Myers Squibb Have Sufficient Cash Cushion To Meet Its Obligations Through The Coronavirus Crisis?

Bristol Myers Squibb’s total debt increased from $7 billion in 2016 to $45 billion at the end of Q3 2020 (primarily due to the Celgene acquisition), while its total cash increased from $9 billion to $22 billion over the same period. Bristol Myers Squibb generated $10 billion cash from operations in the first nine months of 2020. While the company’s debt levels are high, the company has enough liquidity cushion to weather the current crisis.

Conclusion

Phases of Covid-19 Crisis:

  • Early- to mid-March 2020: Fear of the coronavirus outbreak spreading rapidly translates into reality, with the number of cases accelerating globally
  • Late-March 2020 onward: Social distancing measures + lockdowns
  • April 2020: Fed stimulus suppresses near-term survival anxiety
  • May-June 2020: Recovery of demand, with gradual lifting of lockdowns – no panic anymore despite a steady increase in the number of cases
  • July-October 2020: After poor Q2 results, Q3 expectations were lukewarm, but continued improvement in demand, and progress with vaccine development buoyed market sentiment

As the global economy opens up and lockdowns are lifted in phases, consumer demand is expected to pick up. This could be reflected in the form of a pick-up in revenue toward the end of 2020, followed by revenue growth in 2021, boding well for the BMY stock in the near term. While BMY stock has 6% upside for it to recover to pre-Covid highs, we believe the stock could trend much higher than that in the near term.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.

 

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