Will Bristol Myers Squibb Stock Rebound To Its 2022 Highs of $80?

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Bristol Myers Squibb

Bristol Myers Squibb stock (NYSE: BMY) currently trades at $42 per share, 47% below its pre-inflation shock high of $80 seen in June 2022. In contrast, its peer – Merck stock (NYSE:MRK) – is up 56% over this period. BMY stock was trading at $77 in early June 2022, just before the Fed started increasing rates, and is now 45% below that level, compared to 45% gains for the S&P 500 during this period. This underperformance of Bristol Myers Squibb stock can be attributed to declining revenues amid increased biosimilar competition and its slashed guidance for 2024 owing to the impact of acquisitions. Returning to the pre-inflation shock level of $80 means that BMY stock will have to gain 90% from here, and we don’t think this will materialize anytime soon. 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.

The decrease in BMY stock has been far from consistent. Returns for the stock were 1% in 2021, 15% in 2022, and -29% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that BMY underperformed the S&P in 2021 and 2023. In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector including UNH and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could BMY face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months — or will it see a recovery? From a valuation perspective, BMY stock looks like it has ample room for growth? We estimate Bristol Myers Squibb’s Valuation to be $50 per share, reflecting around 18% upside from its current levels of $42. Our forecast is based on a valuation multiple of 2.3x revenues, slightly lower than the 2.8x average over the last three years. A slight decline in valuation multiple for Bristol Myers Squibb seems justified in our view, given a significant expected dip in 2024 earnings.

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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 has kept interest rates unchanged to quell fears of a recession, and it is prepared for rate cuts in 2024 and 2025.

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 decreased from $46.3 billion in 2021 to $45.0 billion in 2023. While market share gains for some of its drugs, including its anticoagulant – Eliquis — have bolstered the top-line growth, falling sales of Revlimid amid biosimilar competition has offset these gains. Bristol Myers Squibb’s operating margin decreased slightly from 18.4% in 2021 to 18.2% in 2023. The company’s earnings stood at $3.86 on a per-share and reported basis in 2023, compared to $3.12 in 2021.

Does Bristol Myers Squibb Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

Bristol Myers Squibb’s total debt increased from $45.6 billion in 2021 to $57.4 billion now, while its cash has decreased from $17.2 billion to around $9.7 billion over the same period. The company also garnered $13.7 billion in cash flows from operations in the last twelve months. Bristol Myers Squibb has high debt levels, but with its cash cushion, it appears to be in a comfortable position to meet its near-term obligations.

Conclusion

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 Revlimid sales are potential risk factors for realizing these gains. The company expects its 2024 sales to rise in the low single-digits and its adjusted earnings to be in the range of $0.40 and $0.70, reflecting a significant cut from its guidance in early 2024 of $7.10 and $7.40 per share. This can be attributed to the charges related to the Karuna acquisition. We think that much of these headwinds are already priced in for Bristol Myers Squibb.

While BMY stock may 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.

 Returns Jun 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 BMY Return 3% -18% -28%
 S&P 500 Return 3% 14% 144%
 Trefis Reinforced Value Portfolio 2% 6% 653%

[1] Returns as of 6/25/2024
[2] Cumulative total returns since the end of 2016

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