Why You Should Dump Bristol Myers Squibb (BMY)

Most investors go gaga over a pharma stock that trades at 7.5x cash flow and pays a dividend yield of almost 4.5%.

No wonder so many bulls refuse to see the danger signs flashing on Bristol Myers Squibb (BMY).

In fact, it’s still one of the most searched healthcare names by financial pros according to our TrackStar data.

And maybe these folks see a better potential value than we do.

But we’re going to present our case as to why this stock probably has further to fall before it finally settles.

Bristol Myers’ Business

Bristol Myers Squibb, the combination of Bristol Myers and Squibb Corp, has a history stretching back to the Civil War.

Today, the biopharmaceutical specializes in discovering, developing, manufacturing, and marketing innovative medicines aimed at treating a wide array of diseases, including cancer, cardiovascular disorders, and immunological, and neurological conditions.

Their flagship products include Opdivo for cancer treatment, Eliquis for blood thinning, Orencia for rheumatoid arthritis, and Revlimid for multiple myeloma.

Its revenues are divided between in-line products (76% of revenues) and new products (24% of revenues).

The problem is what you see below.

Source: BMY Q4 2023 Investor Relations

Bristol Myers’ largest revenue drivers face generic competition, including Revlimid, Abraxane, and Eliquis.

These three drugs account for 43% of sales combined. And as you can see, with loss of exclusivity (LOE) drugs at the bottom, sales are plunging.

Unfortunately, Bristol Myers’ new drugs have yet to hit their stride. Plus, the company’s pipeline faced numerous setbacks in the past few years, including the voluntary withdrawal for approval of Opdivo+Yervoy as a treatment for first-line non-small cell lung cancer and sBLA for Reblozyl for the treatment of anemia in adults.

Financials

Source: Stock Analysis

With the loss of patent protection and an anemic pipeline, Bristol Myers revenues have floundered in the last two years after a remarkable run.

With debt holding at $41 billion, and costing them $1.2 billion per year in interest expenses, $12.4 billion in free cash flow is likely to shrink markedly over the next 2-5 years.

While it’s still more than enough to cover the $4.7 billion in dividends and $5.2 billion in stock repurchases, it likely means these won’t grow anytime soon.

Valuation

Source: Seeking Alpha

It’s interesting to see Bristol Myers’ valuation stacked up against its peers.

Eli Lilly (LLY), with its robust pipeline and massive growth, garners an incredible premium.

Yet, Pfizer (PFE), which faces a drop off in Covid-related sales, still garners a multiple higher than Bristol Myers.

Only Gilead (GILD) is somewhere in the ballpark, and as you’ll see below, its growth is as awful as Bristol Myers’.

Growth

Source: Seeking Alpha

Pfizer’s revenue growth looks awful. However, its issues are very specific and fairly quantifiable.

With Bristol Myers and Gilead, it’s a slow bleed that shows no signs of stopping.

That’s despite the preceding decade being great for both companies.

Profitability

Source: Seeking Alpha

Bristol Myers still has its margins to lean on.

It’s able to deliver a net income margin of 17.8%, ahead of Eli Lilly and Pfizer.

Plus, its free cash flow margin of 30.6% is second only to Gilead’s.

But as we said, that will shrink in the coming years.

Our Opinion 5/10

Bristol Myers has the balance sheet and size to turn things around.

Yet, it needs to do so and quickly.

Many of its peers have chosen to acquire their way into growth.

Ultimately, that may be the best route for Bristol Myers if they can’t deliver on their own internal R&D.

For now, we’d steer clear of the stock and wait for it to show signs of life.

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