Is Bristol Myers Squibb (BMY) a Value Trap?

[View in browser]( [The Spill Logo] BROUGHT TO YOU BY: [Logo]( Proprietary Data Insights Financial Pros’ Top Big Pharma Stock Searches in the Last Month Rank Ticker Name Searches #1 [LLY]( Eli Lilly 42 #2 [BMY]( Bristol Myers Squibb 30 #3 [PFE]( Pfizer Inc 16 #4 [ABBV]( Abbvie Inc 14 #5 [JNJ]( Johnson & Johnson 9 #ad [Your Money, Your Answers: The Juice Perspective]( Brought to you by [Datalign Advisory]( [Make Informed Financial Decisions, Election-Proof Your Future]( [Datalign Advisory - Make Informed Financial Decisions, Election-Proof Your Future]( Navigate the uncertain waters of the upcoming election with confidence. Our expert-driven questionnaire, backed by years of financial expertise, delivers personalized insights tailored to your unique goals. [Secure your financial future today at datalignadvisory.com!]( Is Bristol Myers Squibb (BMY) a Value Trap? Bristol Myers Squibb’s (BMY) stock has been an enigma. Despite a patent cliff that is half a decade away and a generous dividend payout, investors haven’t given it any love… …until recently. Bristol’s management decided to kick things up a notch with the acquisition of Karuna Therapeutics, a company whose schizophrenia drug is expected to bring in $7 billion in annual sales. And lately, the stock has been on fire, up almost 30% in the last month. After reporting earnings, financial pros began to get very interested in the company, according to our TrackStar data, where the stock saw a 200% surge in search volume. A lot of analysts have poo-pooed the stock, with one recently arguing it ran too far too fast. But we have a different opinion on the matter. Bristol Myers Squibb’s Business Bristol Myers develops innovative medicines to tackle serious diseases from cancer to blood clots. This pharma powerhouse excels with its sharp focus on high-growth areas and a pipeline brimming with potential breakthroughs. The company operates in over 50 countries, transforming scientific discoveries into life-changing treatments. Its arsenal includes heavy hitters like Eliquis and Opdivo, while pioneering advancements in cell therapies and protein degradation technologies. Bristol Myers divides its business into two key segments: - Growth Portfolio (46% of total revenues) - The rising stars, including Opdivo, Yervoy, Reblozyl, and Opdualag - Legacy Portfolio (54% of total revenues) - The established champions, featuring Eliquis, Revlimid, and Pomalyst/Imnovid [Portfolio] Source: BMY Q2 2024 Earnings Presentation Investors have expressed concerns about the company’s looming patent cliff for blockbusters like Revlimid and Eliquis. Revlimid, once a $12 billion-a-year product, has already begun facing generic competition, while Eliquis is set to lose exclusivity in 2028. To combat this challenge, management is aggressively diversifying its portfolio and pipeline. The company's recent Q2 2024 earnings report offered encouraging signs, with newer drugs like Reblozyl, Opdualag, and Camzyos showing strong growth trajectories. Additionally, Bristol Myers is banking on potential blockbusters like KarXT for schizophrenia, acquired through the Karuna Therapeutics deal. The company is also extending the lifecycle of existing products, such as developing a subcutaneous version of Opdivo, demonstrating its multifaceted approach to navigating the patent cliff. Financials [Financials] Source: Stock Analysis Outside of the acquisition of Celgene in 2020, Bristol Myers’ revenues haven’t grown much in recent years. While the company has a decent pipeline, much of it is filled with repurposing the existing portfolio rather than entirely new ventures. However, its latest acquisition of Karuna Therapeutics is expected to add $7 billion in annual sales immediately. Annually, Bristol Myers generates over $14 billion in cash and almost $13 billion in free cash flow. It also carries $54 billion in debt, which it plans to reduce by $10 billion over the next two years. This gives the company the flexibility to continue paying out its 4.76% dividend and buyback shares at a roughly equivalent rate. Lastly, it’s worth noting that the company took a $13 billion charge in Q1 related to its acquisition, which turned earnings negative. Without that item, earnings would be $1.34 for the first half of 2024 compared to $2.06 from last year. Valuation [Valuation] Source: Seeking Alpha Bristol Myers’ valuation puts it at the bottom, even after the stock’s latest price run. At a price-to-cash flow ratio of 7.2x, it’s half that of Abbvie (ABBV) and Johnson & Johnson (JNJ). Its low price-to-sales ratio also implies investors discounting the stock based on future sales expectations. Growth [Growth] Source: Seeking Alpha It’s interesting to see Bristol Myers with such a low valuation when it has grown sales on par with Abbvie, better than Pfizer (PFE), and trounces all of them in free cash flow growth. This starts to make a solid case for an undervalued stock. Profitability [Profit] Source: Seeking Alpha Lastly, when we look at the company’s margins, we see a solid EBITDA that flips to a negative net income. But keep in mind the charge associated with the acquisition we noted earlier. Our Opinion 9/10 Bristol Myers stock yields almost 10% in dividends and share buybacks alone. Many argue this isn’t sustainable given the patent cliff the company faces. However, this ignores the active steps management is taking to shore up the near-term pipeline and future growth. While sentiment may keep the shares depressed, we feel that in the coming years, the stock will climb as the company’s growth products begin to show their stuff. 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