Thematic evaluation
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Bristol Myers Squibb Co. (BMY)

September 06, 2024

Compared to: GSK Plc (GSK) | Merck & Co., Inc. (MRK) | Health Care Select Sector SPDR Fund (XLV)

Our reasoning

Bristol Myers Squibb appears undervalued primarily due to its below-average valuation multiples despite strong revenue growth and improving profitability. The company's robust R&D pipeline and strategic acquisitions offer significant growth potential that is not fully reflected in the current stock price. However, pricing pressures, regulatory challenges, and patent risks temper the upside potential.

Key takeaways
  • Bristol Myers Squibb (BMS) is a leading global biopharmaceutical company with a diversified portfolio of marketed products and a robust pipeline, but faces significant challenges from pricing pressures, generic competition, and regulatory changes.
  • BMS has demonstrated strong and sustainable revenue growth, but recent quarters have shown a slowdown. The company's profitability has been improving, but management expects continued pressure on margins.
  • BMS's operational efficiency is improving, but the company faces challenges in managing working capital and generating free cash flow. The company's capital structure is shifting towards a more debt-heavy approach, which could increase financial risk.
  • BMS has a robust R&D pipeline and is actively pursuing business development opportunities to expand its portfolio and drive growth. However, the company faces challenges in navigating a rapidly evolving industry landscape and managing the risks associated with its growth strategy.
  • BMS's valuation is currently below industry averages, suggesting that the market may be undervaluing the company's growth potential and future earnings prospects. However, the company faces headwinds from pricing pressures, generic competition, and regulatory challenges.
  • BMY has consistently underperformed XLV over the past three years. This underperformance is particularly evident in the longer time periods, such as the 1-year, 2-year, and 3-year periods.
  • BMY's performance has been inconsistent relative to XLV. While it has outperformed XLV in some shorter periods, such as the 1-month period, it has underperformed in most other periods.
  • Compared to its peers, BMY has underperformed both MRK and GSK over the past year, with the underperformance being more pronounced over longer periods. This suggests that BMY's performance has been lagging behind its peers.
  • BMY's performance has been inconsistent relative to its peers, with periods of both outperformance and underperformance. This suggests that BMY's performance is not as predictable as its peers.
  • Overall, BMS is a company with a strong brand, a diversified portfolio, and a robust pipeline. However, the company faces significant challenges from pricing pressures, generic competition, and regulatory changes. Investors should carefully consider these factors before making any investment decisions.
Undervalued
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Evaluation summary

  1. Company Overview:

    • Bristol Myers Squibb (BMS) is a global biopharmaceutical company focused on developing and commercializing innovative medicines for serious diseases. Its core business model revolves around research, development, manufacturing, and marketing of biopharmaceutical products, including small molecules, biologics, and CAR-T cell therapies.
    • BMS's product portfolio is diversified across key therapeutic areas like oncology, hematology, immunology, cardiovascular, and neuroscience. Its major marketed products include Eliquis, Opdivo, Orencia, Pomalyst, Yervoy, Sprycel, Reblozyl, Opdualag, Abecma, Zeposia, Breyanzi, Camzyos, Sotyktu, and Augtyro.
    • BMS's target market includes wholesalers, distributors, specialty pharmacies, retailers, hospitals, clinics, and government agencies. It competes with other pharmaceutical companies, smaller research companies, and generic drug manufacturers.
    • For comparative analysis, we are using the Health Care Select Sector SPDR Fund (XLV) as a benchmark and Merck & Co., Inc. (MRK) and GSK Plc (GSK) as industry peers.

  2. Financial Performance:

    • BMS has demonstrated strong and sustainable revenue growth, driven by its diversified portfolio of marketed products and a robust pipeline. However, recent quarters have shown a slowdown in revenue growth, with Q2 2024 revenue increasing by 18% year-over-year (21% excluding FX impact).
    • The company's profitability has been improving, with increasing gross margins, operating margins, and net margins. This improvement is attributed to revenue growth and effective cost management. However, management expects continued pricing pressures and the impact of the Inflation Reduction Act (IRA) to negatively affect revenues and profit margins going forward.
    • BMS's return on assets (ROA), return on equity (ROE), and return on invested capital (ROIC) have been improving, indicating that the company is becoming more efficient in utilizing its assets and generating returns for shareholders. However, these metrics are still below industry averages, suggesting that BMS may need to improve its operational efficiency and profitability to compete effectively with its peers.
    • Compared to its peers, MRK and GSK, BMS has underperformed in terms of revenue growth and profitability. While BMS has been less volatile than its peers, it has experienced a significantly larger maximum drawdown, indicating a higher risk profile.

  3. Operational Efficiency:

    • BMS's asset utilization efficiency appears to be improving, as evidenced by the increase in fixed assets and the relatively stable level of sales. However, the company's free cash flow margin has been declining, which could indicate a potential concern about its ability to generate free cash flow in the future.
    • The company's working capital management has been inconsistent, with fluctuations in accounts receivable, inventories, and other current assets. This suggests that BMS may need to improve its working capital management to optimize cash flow generation.
    • BMS's cash flows from core business operations have been decreasing, which could indicate a decline in profitability or a change in working capital management. The company's capital expenditures have been increasing, which could indicate a commitment to organic growth.
    • BMS's capital structure appears to be shifting towards a more debt-heavy approach, as evidenced by the increase in both short-term and long-term debt. This shift could increase the company's financial risk and potentially limit its future flexibility.
    • BMS's short-term liquidity position appears to be stable, as evidenced by the strong operating cash flow. However, the company's long-term liquidity position appears to be weakening, as evidenced by the decline in cash and short-term investments.
    • Compared to its peers, BMS has a lower current ratio and quick ratio, indicating a weaker short-term liquidity position. However, BMS has a lower debt-to-equity ratio and leverage ratio, indicating a lower level of financial risk.

  4. Growth Opportunities:

    • BMS is actively pursuing business development opportunities, including acquisitions and strategic collaborations, to expand its oncology and neuroscience portfolios. The company has completed several acquisitions in recent years, including Karuna, RayzeBio, and Mirati.
    • BMS has a robust R&D pipeline with multiple promising candidates in various stages of development. The company is focused on developing innovative medicines in key therapeutic areas, including oncology, immunology, and cardiovascular disease.
    • BMS is also exploring geographic expansion opportunities, particularly in emerging markets with high growth potential. However, the company faces challenges in navigating regulatory hurdles and establishing a strong presence in these markets.
    • BMS's strategic focus areas include reshaping its portfolio to prioritize transformational medicines, driving operational excellence, and strategically allocating capital for long-term growth. The company is committed to delivering top-line growth and increasing profitability.
    • BMS has a history of successfully executing strategic plans, including acquisitions, product launches, and cost-saving initiatives. However, the company faces challenges in navigating a rapidly evolving industry landscape and managing the risks associated with its growth strategy.

  5. Risks and Threats:

    • BMS faces significant pricing pressures and regulatory challenges, including the impact of the Inflation Reduction Act (IRA), which could materially impact revenues and profitability going forward.
    • Patent challenges and generic competition for key products like Eliquis and Revlimid pose a major risk, potentially leading to earlier-than-expected revenue declines.
    • Legal and regulatory risks, including ongoing intellectual property disputes and product liability litigation, represent another area of concern that could result in substantial costs and liabilities.
    • The company's reliance on a few key products exposes it to significant risk if these products lose market share or face regulatory challenges.
    • The global pharmaceutical industry is highly competitive, with numerous players vying for market share. BMS faces competition from both large pharmaceutical companies and smaller biotech firms.
    • The company's operations are subject to various macroeconomic risks, including economic downturns, currency fluctuations, and political instability.

  6. Valuation Analysis:

    • BMS's valuation metrics, such as P/E ratio and EV/EBITDA, are currently below industry averages. This suggests that the market may be undervaluing the company's growth potential and future earnings prospects.
    • Compared to its peers, BMS has a lower P/E ratio and EV/EBITDA, indicating a lower valuation. This could be due to the company's underperformance in recent years and the risks associated with its business.
    • Potential catalysts for BMS's valuation include successful product launches, pipeline advancements, and cost-saving initiatives. However, the company faces headwinds from pricing pressures, generic competition, and regulatory challenges.

  7. Price Performance:

    • BMY has consistently underperformed XLV over the past three years. This underperformance is particularly evident in the longer time periods, such as the 1-year, 2-year, and 3-year periods.
    • BMY's performance has been inconsistent relative to XLV. While it has outperformed XLV in some shorter periods, such as the 1-month period, it has underperformed in most other periods.
    • BMY has provided lower annualized returns than XLV over the past three years. This suggests that XLV has been a more profitable investment than BMY.
    • BMY has been more volatile than XLV over the past three years. This is evident in its higher annualized volatility and more frequent and larger drawdowns.
    • BMY's maximum drawdown of 47.42% is significantly higher than XLV's maximum drawdown of 16.06%. This indicates that BMY is a riskier investment than XLV.
    • Compared to its peers, BMY has underperformed both MRK and GSK over the past year, with the underperformance being more pronounced over longer periods. This suggests that BMY's performance has been lagging behind its peers.
    • BMY's performance has been inconsistent relative to its peers, with periods of both outperformance and underperformance. This suggests that BMY's performance is not as predictable as its peers.

  8. Future Outlook:

    • Management expects continued pricing pressures and the impact of the IRA to negatively affect revenues and profit margins going forward. However, the company is confident in its ability to navigate these challenges and deliver top-line growth at the upper end of its guidance range.
    • BMS has a robust pipeline with multiple promising candidates in various stages of development. The company expects significant pipeline catalysts in the second half of 2024 and through 2026, including data readouts for LPA1, multiple myeloma programs, and Milvexian.
    • Analyst estimates for BMS's future performance are mixed, with some analysts expecting continued growth and others anticipating a slowdown. The consensus view is that the company will continue to face challenges from pricing pressures, generic competition, and regulatory changes.

  9. Summary:

    • BMS is a leading global biopharmaceutical company with a diversified portfolio of marketed products and a robust pipeline. However, the company faces significant challenges from pricing pressures, generic competition, and regulatory changes.
    • BMS has demonstrated strong and sustainable revenue growth, but recent quarters have shown a slowdown. The company's profitability has been improving, but management expects continued pressure on margins.
    • BMS's operational efficiency is improving, but the company faces challenges in managing working capital and generating free cash flow. The company's capital structure is shifting towards a more debt-heavy approach, which could increase financial risk.
    • BMS has a robust R&D pipeline and is actively pursuing business development opportunities to expand its portfolio and drive growth. However, the company faces challenges in navigating a rapidly evolving industry landscape and managing the risks associated with its growth strategy.
    • BMS's valuation is currently below industry averages, suggesting that the market may be undervaluing the company's growth potential and future earnings prospects. However, the company faces headwinds from pricing pressures, generic competition, and regulatory challenges.
    • BMY has consistently underperformed XLV over the past three years. This underperformance is particularly evident in the longer time periods, such as the 1-year, 2-year, and 3-year periods.
    • BMY's performance has been inconsistent relative to XLV. While it has outperformed XLV in some shorter periods, such as the 1-month period, it has underperformed in most other periods.
    • Compared to its peers, BMY has underperformed both MRK and GSK over the past year, with the underperformance being more pronounced over longer periods. This suggests that BMY's performance has been lagging behind its peers.
    • BMY's performance has been inconsistent relative to its peers, with periods of both outperformance and underperformance. This suggests that BMY's performance is not as predictable as its peers.
    • Overall, BMS is a company with a strong brand, a diversified portfolio, and a robust pipeline. However, the company faces significant challenges from pricing pressures, generic competition, and regulatory changes. Investors should carefully consider these factors before making any investment decisions.
Peer fundamentals 
Fundamentals
Insights
  • Bristol-Myers Squibb (BMS) is a leading global biopharmaceutical company with a diversified portfolio of marketed products and a robust pipeline.
  • The company has experienced strong and sustainable revenue growth, driven by its new product portfolio and in-line products.
  • BMS has experienced strong and improving profitability, driven by its revenue growth and cost management.
  • The company's liquidity position appears to be weakening, as evidenced by the decline in cash and short-term investments.
  • BMS's long-term solvency appears to be stable, as evidenced by the strong free cash flow generation and the relatively low debt levels.
  • The company's capital structure appears to be shifting towards a more debt-heavy approach, as evidenced by the increase in both short-term and long-term debt.
  • BMS's asset utilization efficiency appears to be improving, as evidenced by the increase in fixed assets and the relatively stable level of sales.
  • The company's free cash flow margin has been declining, which could indicate a potential concern about the company's ability to generate free cash flow in the future.
  • BMS faces significant pricing pressures and regulatory challenges, including the impact of the Inflation Reduction Act, which could materially impact revenues and profitability going forward.
  • Patent challenges and generic competition for key products like Eliquis and Revlimid pose a major risk, potentially leading to earlier-than-expected revenue declines.
  • Legal and regulatory risks, including ongoing intellectual property disputes and product liability litigation, represent another area of concern that could result in substantial costs and liabilities.
  • Overall, BMS appears to be navigating a challenging operating environment, but its diversified portfolio, pipeline, and strategic initiatives provide some avenues for future growth, though the company will need to effectively manage the various risks it faces.
Analysis
  • Revenue - Bristol-Myers Squibb (BMS) has experienced strong and sustainable revenue growth, driven by its diversified portfolio of marketed products and a robust pipeline. - The company's new product portfolio and in-line products have been key drivers of revenue growth. - Management expects continued pricing pressures and impact from the Inflation Reduction Act (IRA) to negatively affect revenues and profit margins going forward.
    • Profitability
      • BMS has experienced strong and improving profitability, driven by its revenue growth and cost management.
      • The company's gross margin, operating margin, and net margin are all improving, indicating that the company is becoming more profitable.
      • The company is effectively controlling its operating expenses, which is contributing to its improved profitability.
    • Liquidity
      • BMS's liquidity position appears to be weakening, as evidenced by the decline in cash and short-term investments.
      • The company's short-term liquidity position appears to be stable, as evidenced by the strong operating cash flow.
    • Solvency
      • BMS's long-term solvency appears to be stable, as evidenced by the strong free cash flow generation and the relatively low debt levels.
      • The company's capital structure appears to be shifting towards a more debt-heavy approach, as evidenced by the increase in both short-term and long-term debt.
    • Operational Efficiency
      • BMS's asset utilization efficiency appears to be improving, as evidenced by the increase in fixed assets and the relatively stable level of sales.
      • The company's free cash flow margin has been declining, which could indicate a potential concern about the company's ability to generate free cash flow in the future.
    • Cash Flow Analysis
      • BMS's cash flows from core business operations have been decreasing, which could indicate a decline in profitability or a change in working capital management.
      • The company's capital expenditures have been increasing, which could indicate a commitment to organic growth.
      • The company's acquisition strategy appears to be focused on expanding its oncology and neuroscience portfolios.
    • Risk Factors
      • The company faces significant pricing pressures and regulatory challenges, including the impact of the Inflation Reduction Act, which could materially impact revenues and profitability going forward.
      • Patent challenges and generic competition for key products like Eliquis and Revlimid pose a major risk, potentially leading to earlier-than-expected revenue declines.
      • Legal and regulatory risks, including ongoing intellectual property disputes and product liability litigation, represent another area of concern that could result in substantial costs and liabilities.
    • Future Outlook
      • BMS's future revenue growth is expected to be at the upper end of the low single-digit growth range.
      • The company's profitability margins are expected to be impacted by pricing pressures and the IRA.
      • The company's future cash flows are likely to be impacted by its strategic initiatives, including acquisitions and investments in new products.
      • The company's future free cash flow is expected to be sufficient to support debt repayment, dividend growth, and investments in organic growth opportunities.
Most recent earnings report
Financial statements 
All public filings
Comparative Analysis
Benchmarks (as of 2024-08-09)
Health Care Select Sector SPDR Fund (XLV)
  • Performance Comparison:
    • BMY has consistently underperformed XLV over the past three years. This underperformance is particularly evident in the longer time periods, such as the 1-year, 2-year, and 3-year periods.
    • BMY's performance has been inconsistent relative to XLV. While it has outperformed XLV in some shorter periods, such as the 1-month period, it has underperformed in most other periods.
  • Risk and Return Analysis:
    • BMY has provided lower annualized returns than XLV over the past three years. This suggests that XLV has been a more profitable investment than BMY.
    • BMY has been more volatile than XLV over the past three years. This is evident in its higher annualized volatility and more frequent and larger drawdowns.
    • BMY's maximum drawdown of 47.42% is significantly higher than XLV's maximum drawdown of 16.06%. This indicates that BMY is a riskier investment than XLV.
  • Risk-Adjusted Performance:
    • XLV has consistently offered a better risk-adjusted return than BMY, as indicated by its higher Sharpe ratio. This suggests that XLV has been a more efficient investment than BMY.
    • BMY's beta values suggest that it is less sensitive to market movements than XLV. However, this does not necessarily mean that BMY is a less risky investment, as its higher volatility and drawdowns indicate otherwise.
  • Overall Assessment:
    • BMY has underperformed XLV in terms of both absolute and risk-adjusted returns over the past three years. While BMY has been less volatile than the overall market, its higher volatility and drawdowns compared to XLV suggest that it is a riskier investment.
    • The recent trends in BMY's volatility, drawdowns, and Sharpe ratio suggest that its performance may be deteriorating. This could be due to a number of factors, such as competition in the pharmaceutical industry, changes in regulatory environment, or challenges in developing new drugs.
    • Investors considering BMY should carefully assess its risk profile and compare its performance to other investments in the healthcare sector.
Peers Price History(as of 2024-09-04)
GSK Plc (GSK)Merck & Co., Inc. (MRK)
  • Performance Comparison:
    • BMY has underperformed both MRK and GSK over the past year, with the underperformance being more pronounced over longer periods. This suggests that BMY's performance has been lagging behind its peers.
    • BMY's performance has been inconsistent relative to its peers, with periods of both outperformance and underperformance. This suggests that BMY's performance is not as predictable as its peers.
  • Risk and Return Analysis:
    • BMY has provided lower annualized returns than both MRK and GSK over the past two years. This suggests that BMY has not been as profitable as its peers.
    • BMY has generally been less volatile than both MRK and GSK, with the exception of Q1 2024. This suggests that BMY is less risky than its peers.
    • BMY has experienced the largest maximum drawdown of 47.67% in Q4 2024, which is significantly higher than the maximum drawdowns experienced by MRK and GSK. This suggests that BMY is more susceptible to significant losses than its peers.
  • Risk-Adjusted Performance:
    • BMY's Sharpe ratio has been lower than both MRK's and GSK's for most of the period, indicating that BMY has not been as efficient in generating risk-adjusted returns as its peers.
    • BMY's beta suggests that it is less sensitive to market movements than its peers. This indicates that BMY is less risky than its peers.
  • Overall Assessment:
    • BMY has underperformed its peers in terms of both absolute and risk-adjusted returns. While BMY has been less volatile than its peers, it has experienced a significantly larger maximum drawdown, indicating a higher risk profile.
    • BMY's recent trends suggest that its volatility is increasing, its Sharpe ratio is decreasing, and its beta is decreasing. This suggests that BMY's risk profile is becoming more volatile, its risk-adjusted returns are declining, and its sensitivity to market movements is decreasing.
    • Investors should carefully consider BMY's underperformance, higher risk profile, and recent trends before making any investment decisions.
Peers Fundamentals(as of 2024-06-30)
GSK Plc (GSK)Merck & Co., Inc. (MRK)

  1. Market Position and Size:

    • BMY is the smallest of the three companies, with a market capitalization of 101289.0 million, roughly one-third of MRK's market cap of 293531.0 million. However, BMY is significantly larger than GSK, with a market cap of 67873.9 million.
    • BMY's revenue, EBITDA, and net income are all significantly lower than MRK's, reflecting its smaller size. However, BMY's financial metrics are generally higher than GSK's, consistent with its larger market cap within the peer group.

  2. Profitability and Efficiency:

    • BMY's profitability metrics are generally lower than both its peers and industry averages. Its Gross Profit Margin, EBITDA Margin, and Net Profit Margin are significantly lower than MRK's and GSK's, and well below the industry average.
    • BMY's return on capital metrics are significantly lower than its peers and industry averages, suggesting that BMY is less efficient in generating returns on its assets and investments compared to its peers and industry.

  3. Financial Health and Stability:

    • BMY's liquidity position appears adequate, with a Current Ratio and Quick Ratio that are above the industry average. However, its high debt levels raise concerns about its financial stability and ability to manage future financial challenges.
    • BMY's Total Debt to Total Equity Ratio and Debt / EBITDA ratio are significantly higher than its peers and industry averages, indicating a high level of debt financing, which could increase its financial risk and vulnerability to economic downturns.

  4. Valuation and Market Perception:

    • BMY's valuation metrics are generally lower than its peers and industry averages, suggesting that the market perceives BMY as a less attractive investment compared to its peers and industry. This could be attributed to concerns about its growth prospects, profitability, or future earnings potential.

  5. Cash Flow and Capital Management:

    • BMY's cash flow metrics are significantly lower than its peers, considering their respective market caps. This suggests that BMY generates less cash from its operations compared to its peers, potentially reflecting lower profitability or inefficiencies in its operations.
    • BMY's Total Capital Expenditure is also lower than MRK's and GSK's, indicating that BMY invests less in capital assets compared to its peers, potentially reflecting a more conservative investment strategy or a focus on maintaining existing operations rather than expanding.

  6. Growth and Future Prospects:

    • BMY has shown strong growth in sales, EBITDA, and free cash flow over the past 5 years, indicating a sustainable growth trajectory in these areas. However, its growth in net income and basic earnings per share has been significantly lower than the peer group average, suggesting that BMY may be facing challenges in translating its revenue growth into profitability.
    • BMY's growth rates have been volatile, with significant year-to-year fluctuations. This is evident in the standard deviation of its year-over-year growth rates, which is higher than the peer group average for most metrics.
    • Comparing BMY's 3-year and 5-year CAGR figures reveals that its longer-term growth trends are generally lower than the peer group average, suggesting that BMY's growth has slowed in recent years, potentially reflecting challenges in its market share or competitive position.

  7. Potential for Investment:

    • BMY's investment attractiveness is mixed. While BMY has shown strong growth in sales, EBITDA, and free cash flow, its profitability and return on capital metrics are significantly lower than its peers and industry averages. Additionally, BMY's high debt levels raise concerns about its financial stability and ability to manage future financial challenges.
    • Investors seeking companies with strong profitability and return on capital metrics may find BMY less attractive compared to its peers. However, investors seeking companies with strong growth potential in sales, EBITDA, and free cash flow may find BMY more appealing.

  8. Key Risks and Considerations:

    • BMY's high debt levels could increase its financial risk and vulnerability to economic downturns.
    • BMY's lower profitability and return on capital metrics compared to its peers and industry averages suggest potential inefficiencies or challenges in its operations.
    • BMY's growth in net income and basic earnings per share has been significantly lower than the peer group average, suggesting that BMY may be facing challenges in translating its revenue growth into profitability.

  9. Overall Assessment:

    • BMY's overall financial position is mixed. While BMY has shown strong growth in sales, EBITDA, and free cash flow, its profitability and return on capital metrics are significantly lower than its peers and industry averages. Additionally, BMY's high debt levels raise concerns about its financial stability and ability to manage future financial challenges.
    • Investors should carefully consider BMY's financial performance and risk profile before making any investment decisions.