Rising interest rates and fears of an economic slowdown have resulted in a 24% year-to-date dip in the Nasdaq Composite.
Unsurprisingly, value stocks have performed exceptionally well so far this year as investors ran for cover amid the market volatility. This explains how pharma stock Bristol-Myers Squibb (BMY -0.20%) has rallied 22% year to date. But is the stock still a buy? Let's dive into Bristol-Myers' fundamentals and valuation to find out.
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Consistently topping the analysts' consensus
On April 29, Bristol-Myers reported its results for the first quarter. The company's revenue and earnings both surpassed average analyst estimates for the quarter.
Bristol-Myers' revenue totaled $11.6 billion in the quarter, up 5.2% from the year-ago period. This beat the analyst revenue consensus of $11.3 billion for the first quarter. So how did the company exceed the average analyst revenue prediction for the eighth out of the past 10 quarters?
The drugmaker's increased revenue was driven by growth in two of its three top-selling drugs. The anticoagulant Eliquis, which is co-owned with Pfizer, produced $3.2 billion in revenue in the first quarter for the company. This was equivalent to an 11.3% year-over-year growth rate. And the cancer drug Opdivo generated $1.9 billion in revenue, up 11.8% from a year ago.
Growth in these two drugs more than offset the 5% year-over-year decline in revenue to $2.8 billion for the cancer drug Revlimid in the first quarter. This dip in revenue for Revlimid was due to generic drug competition in the European Union and Canada.
Bristol-Myers recorded $1.96 in non-GAAP (adjusted) diluted earnings per share (EPS) in the first quarter, or 12.6% higher than the year-ago period. This bested the adjusted diluted EPS analyst consensus of $1.92. And it marked the ninth quarter out of the last 10 that Bristol-Myers either matched or outdid analysts' earnings expectations.
Aside from the company's higher revenue base, this was the result of two factors. First, Bristol-Myers' non-GAAP net margin expanded 70 basis points year over year to 36.5% in the first quarter. Second, the pharma company's weighted-average outstanding share count fell 4.5% over the year-ago period to 2.2 billion shares.
Due to upcoming patent expirations, Bristol-Myers' earnings growth will likely slow compared to the rate of growth produced in the first quarter. Even so, analysts expect that the 50-plus compounds in development should translate into 4.4% annual earnings growth over the next five years for the company.
Strong dividend growth can continue
Bristol-Myers' market-beating 2.9% dividend yield is another intriguing attribute of the stock. And with a dividend payout ratio expected to be 28% in 2022, the dividend looks to be very safe. After all, this leaves Bristol-Myers with plenty of capital to repay debt, execute acquisitions, and continue repurchasing shares.
This is precisely why I believe that the stock will deliver high-single-digit annual dividend growth for the foreseeable future. That's an attractive mix of income and growth prospects.
The stock is still undervalued
After Bristol-Myers' huge gains this year, you'd think that the stock would be fully valued by now. But that doesn't appear to be the case.
This is supported by the fact that Bristol-Myers' forward price-to-earnings (P/E) ratio of 9.9 is well below the S&P 500 pharmaceutical industry average of 13.1. Even with patent expirations for its three top-selling drugs looming this decade, this is a very conservative valuation for a stock of Bristol-Myers' caliber. And it makes the stock a no-brainer buy for investors looking to increase their allocation to the pharmaceutical industry.
