Here’s Why Bristol Myers Squibb Stock Is A Better Pick Over This Pharmaceutical Bellwether

BMY: Bristol Myers Squibb logo
Bristol Myers Squibb

We think that Bristol Myers Squibb stock (NYSE: BMY) currently is a better pick compared to its industry peer Johnson & Johnson stock (NYSE: JNJ), given its better growth prospects and comparatively lower valuation of 3.2x trailing revenues, compared to 4.5x for J&J. This valuation gap can be attributed to J&J’s ability to generate better profits and its lower financial risk. However, looking forward, BMS appears to have better growth prospects over J&J, as we discuss in the sections below. We compare a slew of factors such as historical revenue growth, returns, and valuation multiple in an interactive dashboard analysis Bristol Myers Squibb vs. Johnson & Johnson: Which Stock Is A Better Bet? Parts of the analysis are summarized below.

1. Bristol Myers Squibb’s Revenue Growth Is Better

  • Both companies managed to see sales growth over the recent quarters, but BMS has witnessed marginally faster revenue growth over the recent quarters. Looking at a longer time frame, BMS’ sales have jumped from $20.8 billion in 2017 to $46.4 billion in 2021, while J&J’s revenues have risen from $76.5 billion to $93.8 billion over the same period.
  • Note that BMS’ revenue growth has been aided by its Celgene acquisition in 2019.
  • The recent rise in revenue for both the companies has been led by a rebound in demand post-pandemic induced lockdowns.
  • BMS’ anticoagulant – Eliquis – continues to gain market share and bolster the company’s overall top-line growth.
  • While J&J’s medical devices business faced headwinds in 2020 due to the pandemic’s impact, it has seen a rebound over the recent quarters. The company’s pharmaceuticals business is seeing strong growth led by market share gains for its cancer drugs, Imbruvica and Darzalex, and immunology drugs, Stelara and Tremfya.
  • Our Bristol Myers Squibb Revenues and Johnson & Johnson Revenues dashboards provide more details on the company’s segments.
  • Now, BMS’ revenue growth of 9% over the last twelve-month period is lower than the 14% growth for J&J. However, if we were to look at the previous three-year revenue growth, BMS has outperformed J&J with its CAGR of 29%, compared to 5% for J&J.. Still, like we mentioned above, the Celgene acquisition has buoyed BMS’ number.
  • Looking forward, BMS’ top-selling drug – Revlimid – will lose its market exclusivity this year, and it is likely to weigh on its sales growth over the coming years.
  • That said, BMS’ revenue is expected to grow at a faster pace compared to J&J. The table below summarizes our revenue expectation for BMS and J&J over the next three years and points to a CAGR of 8.2% for BMS, compared to a CAGR of 4.2% for J&J.
  • Note that we have different methodologies for companies negatively impacted by Covid and for companies not impacted or positively impacted by Covid while forecasting future revenues. For companies negatively affected by Covid, we consider the quarterly revenue recovery trajectory to forecast recovery to pre-Covid revenue run rate. Beyond the recovery point, we apply the average annual growth observed in the three years before Covid to simulate return to normal conditions. For companies registering positive revenue growth during Covid, we consider yearly average growth before Covid with a certain weight to growth during Covid and the last twelve months.

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2. J&J Is More Profitable And Offers Lower Risk

  • BMS’ operating margin of 11% over the last twelve-month period is lower than 25% for J&J. Also, J&J’s average operating margin of around 24% in the previous three years is far superior to about 6% for BMS.
  • Looking at the recent margin growth, BMS is better, with the last twelve months vs. the previous three-year margin change at 5%, compared to 1% for J&J.
  • Looking at financial risk, J&J trumps BMS. Its 8% debt as a percentage of equity is much lower than 30% for BMS. Similarly, J&J’s 17% cash as a percentage of assets is slightly higher than 16% for BMS, implying that J&J has better debt and cash position.

3. The Net of It All

  • We see that the revenue growth has been better for BMS over recent years. It is also available at a lower valuation over J&J. However, J&J is more profitable and offers lower financial risk.
  • Looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe BMS is currently the better choice of the two.
  • The table below summarizes our revenue and return expectation for BMS and J&J over the next three years and points to an expected return of 40% for BMY stock over this period vs. 12% expected returns for JNJ stock, implying that investors are better off buying BMS over J&J, based on our dashboard – Bristol Myers Squibb vs. Johnson & Johnson – which also provides more details on how we arrive at these numbers.

While BMY stock may outperform JNJ, the Covid-19 crisis has created many pricing discontinuities which can offer attractive trading opportunities. For example, you’ll be surprised how counter-intuitive the stock valuation is for Xylem vs. Merck.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Feb 2022
MTD [1]
YTD [1]
Total [2]
BMY Return 5% 9% 16%
JNJ Return -6% -6% 40%
S&P 500 Return -6% -11% 89%
Trefis MS Portfolio Return -5% -14% 239%

[1] Month-to-date and year-to-date as of 2/24/2022
[2] Cumulative total returns since the end of 2016

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