Last year, large-cap pharmaceutical company Bristol Myers Squibb (BMY 0.43%) completed its $74 billion acquisition of cancer biotech company Celgene, creating one of the largest biopharma companies in the world in terms of market cap. However, investors are now worried that the acquisition has caused Bristol Myers Squibb to enter into financial constraints due to COVID-19.
As a result, shares are down more than 12% year to date, compared to the S&P 500 index's 4% decline. In my opinion, I think investors' fears are overblown. In this article, I will tackle why Bristol Myers Squibb is a solid buy due to its growth, dividend, and value prospects.
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The growth case
In first-quarter 2020, Bristol Myers Squibb's net product sales grew by 84.5% compared to first-quarter 2019, mainly due to its Celgene acquisition. Net of this acquisition and effects from COVID-19, the company's revenue grew by 8% pro forma year over year. Sales of its flagship anti-blood clot drug Eliquis grew by 37.2% year over year and now holds a 57% market share in the anticoagulant sector.
Meanwhile, revenues from its plasma cell cancer drugs Revlimid and Pomalyst (both acquired from Celgene) grew 14% and 29% year over year, respectively. These two cancer drugs are on track to generate more than $13 billion in revenue combined this year due to robust demand for their use as combination therapies for treating myeloma.
The company's cancer immunotherapy drugs, Opdivo and Yervoy, are also selling well, bringing in about $2 billion in combined revenue for the quarter.
The dividend case
Bristol Myers Squibb has been growing its dividend every single year since 1999 from $0.22 per share per quarter to $0.45 per quarter as of June 2020. At an annualized payout rate of $1.80 per share, this results in a dividend yield of 3.2%, which compares favorably to the S&P 500's dividend yield of 1.96%.
The company currently has no plans to cut its dividend due to impacts from COVID-19. Bristol Myers Squibb's payout ratio, defined as the proportion of net income it distributes in dividends, is also sustainable at 88%.
Moreover, the company is stable in terms of financial health and profitability. Bristol Myers Squibb boasts more than 70% in gross margin, 26% in operating margin, and 13% in net margin. Its return on equity is also excellent, at 10.48%. While its Celgene acquisition caused its combined short-term and long-term debt to increase to $46.6 billion, the company does have $19 billion in cash and investments for liquidity. Overall, its debt-to-equity ratio stands at a manageable 91%.
The value case
Currently, Bristol Myers Squibb is trading at a mere eight times forward earnings and three times its 2020 adjusted revenue guidance of $40 billion to $42 billion. By the end of 2023, the company expects its financial leverage, or net debt to earnings before interest, taxes, depreciation, and amortization (EBITDA), drop to 1.5. At the same time, the company expects to achieve more than $2.5 billion in synergies from its Celgene acquisition, which would help lower administrative costs and increase its bottom line.
Compared to other large-cap pharma stocks, Bristol Myers Squibb is also trading at a great valuation. For example, its industry peers such as Pfizer (PFE 1.00%) and Gilead Sciences (GILD 0.28%) are trading for 12 times earnings and 19 times earnings respectively, which are significantly more expensive than Bristol Myers Squibb's P/E of eight.
Worth talking about -- and buying
In conclusion, due to substantial revenue growth, a track record of dividend increases, and incredible value I believe Bristol Myers Squibb is a fantastic stock for investors interested in pharma stocks. It is an even better buy for investors that seek exposure to companies investigating new, groundbreaking cancer treatments.
