Bristol Myers Squibb stock (NYSE: BMY) currently trades at $59 per share, 6% below the level seen in March 2021, and it has room for growth, in our view. BMY stock was trading at around $77 in early June 2022, just before the Fed started increasing rates, and is now 23% above that level, compared to 14% gains for the S&P 500 during this period. The decline in the stock over recent months can partly be attributed to declining sales of its top selling drug – Revlimid – amid biosimilar competition.
Interestingly, BMY stock has had a Sharpe Ratio of 0.1 since early 2017, lower than 0.6 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.3 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
Returning to the pre-inflation shock level of over $80 means that BMY stock will have to gain more than 35% from here, and we think it will likely materialize over time. We estimate Bristol Myers Squibb’s valuation to be around $76 per share, over 25% above its current market price.
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Our detailed analysis of Bristol Myers Squibb’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.
2022 Inflation Shock
Timeline of Inflation Shock So Far:
- 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
- Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply.
- April 2021: Inflation rates cross 4% and increase rapidly.
- Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process.
- June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from peak levels.
- July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline.
October 2022 – July 2023: Fed continues rate hike process; improving market sentiments helps S&P500 recoup some of its losses.
Since August 2023: Fed keeps interest rates unchanged to quell fears of a recession, although another rate hike remains in the cards.
In contrast, here’s how BMY stock and the broader market performed during the 2007/2008 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)
Bristol Myers Squibb and S&P 500 Performance During 2007-08 Crisis
BMY stock declined from nearly $29 in September 2007 (pre-crisis peak) to $18 in March 2009 (as the markets bottomed out), implying it lost almost 37% of its pre-crisis value. It recovered post the 2008 crisis to levels of around $25 in early 2010, rising 37% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.
Bristol Myers Squibb’s Fundamentals Over Recent Years
Bristol Myers Squibb’s revenue increased from $26 billion in 2019 to $46 billion in 2022, partly aided by its Celgene acquisition in 2019. Market share gains for some of its drugs, including its anticoagulant – Eliquis – have also bolstered the top-line growth. However, the company now faces biosimilar competition for its top-selling drug – Revlimid – which saw its sales fall 22% y-o-y to $10 billion in 2022. The company expects the drug to garner only $5.5 billion in 2023.
Bristol Myers Squibb’s operating margin declined from 23% in 2019 to 18% in 2022. Our Bristol Myers Squibb Operating Income Comparison dashboard has more details. The company’s earnings stood at $2.97 on a per-share and reported basis in 2022, compared to the $2.02 figure in 2019.
Does Bristol Myers Squibb Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?
Bristol Myers Squibb’s total debt decreased from $47 billion in 2019 to $39 billion in 2022, while its cash has decreased from $16 billion to around $9 billion over the same period. The company also garnered $13 billion in cash flows from operations in 2022. Bristol Myers Squibb has high debt levels, but with its cash cushion, it is in a good position to meet its near-term obligations.
With the Fed’s efforts to tame runaway inflation rates helping market sentiment, we believe BMY stock has the potential for more gains once fears of a potential recession are allayed. That said, unfavorable macroeconomic factors and declining Revimid sales are potential risk factors for realizing these gains.
While BMY stock can see higher levels, it is helpful to see how Bristol Myers Squibb’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
|S&P 500 Return||-4%||13%||93%|
|Trefis Reinforced Value Portfolio||-6%||24%||534%|
 Month-to-date and year-to-date as of 9/26/2023
 Cumulative total returns since the end of 2016