Bristol-Myers Squibb Company (BMY) is one of the most innovative pharmaceutical companies in the United States, with a diversified drug pipeline for treating cancer, immunodeficiency diseases and cardiovascular ailments. It is a highly profitable bio-pharmaceutical company with a trailing-12-month gross profit margin of 80.07%.
Despite being a renowned and highly profitable company, BMY’s shares generated only modest gains over the past year as investors flocked to biopharma companies with COVID-19 therapy pipelines. So, we think this overshadowed stock is a potential hidden gem given its sound financials and high dividend payouts and its relative undervaluation.
While rising Treasury yields might lead to a reduced demand for stocks by income investors, BMY’s sturdy drug pipeline and impressive developments should appeal to many investors. Furthermore, Moreover, the stock’s relative undervaluation should pique the interest of value investors.
Click here to checkout our Healthcare Sector Report for 2021
Here’s what could shape BMY’s performance in the near term:
Robust Drug Pipeline
BMY has been making significant progress in cancer drug discovery. The company is on track to introduce Europe’s first adjuvant immunotherapy for patients diagnosed with muscle invasive urothelial carcinoma. Its Opdivo drug has been validated by the European Medicines Agency and is currently pending approval.
On March 27, the U.S. FDA approved BMY’s first-in-class BCMA-directed personalized immune cell therapy drug Abecma. The FDA is also currently reviewing BMY’s cardiomyopathy drug mavacamten and is expected to announce the verdict regarding its nationwide usage by next January.
High Dividend Yield
BMY pays $1.96 in dividends annually, yielding 3.10% at the current share price. It has a dividend payout ratio of 26.18%. The company’s four-year average dividend yield stands at 2.97%, 127.2% higher than the industry average 1.31%. Its one-year, three-year and five-year yields on costs have remained constant at 0.03%, which is higher than the respective industry averages.
BMY’s dividend payouts have increased at a CAGR of 6% over the past three years, and 4.6% over the past five years.
Impressive Growth Story
BMY’s revenues have increased 62.6% year-over-year, and at a CAGR of 27% over the past three years. Its ebitda margin improved 106.1% over the past year, and at a rate of 58.5% per annum over the past three years.
Furthermore, the company’s total assets and levered free cash flow have increased at CAGRs of 52.3% and 97.5%, respectively, over the past three years.
Discounted Valuation
In terms of non-GAAP forward p/e, BMY is currently trading at 8.43x, 65.2% lower than the industry average 24.23x. Its non-GAAP forward PEG ratio of 1.68 is 14.9% lower than the industry average 1.97x.
The company’s forward price/sales and price/cash flow multiples of 3.05 and 8.64, respectively, compare favorably with industry averages.
Consensus Ratings and Price Target Indicates Potential Upside
BMY has an average broker rating of 1.45, indicating favorable analyst sentiment. Of the 19 Wall Street analysts that rated the stock, 14 rated it either Buy or Strong Buy and five rated it Hold.
Analysts expect BMY to hit $75.13 soon, indicating a potential upside of 23.7%.
POWR Ratings Reflect Rosy Prospects
BMY has a B overall rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with the weighting of each optimized to improve overall performance.
BMY has a grade of B for Growth, Sentiment and Value. The grades are justified, given the company’s robust past financial performance, relative undervaluation, and projected growth.
Of the 236 stocks in the Medical – Pharmaceuticals industry, BMY is ranked #14. In total, we rate BMY in eight different levels. Beyond what we’ve stated, one can get additional BMY Ratings for Momentum, Quality, and Stability here.
Check out the top-rated stocks in the Medical – Pharmaceuticals industry here.
Bottom Line
As the Fed continues to hold interest rates at near zero levels, we think BMY is an ideal stock for a steady stream of income. Also, the company’s impressive progress in drug development could soon translate to substantial price appreciation.
Click here to checkout our Healthcare Sector Report for 2021
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BMY shares were trading at $63.24 per share on Thursday afternoon, up $0.11 (+0.17%). Year-to-date, BMY has gained 2.75%, versus a 7.20% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.
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