Why Its Hard to Go Wrong With Bristol Myers Stock -- Barrons.com
Jacob Sonenshine Bristol Myers Squibb is a good company whose stock has underperformed the stock market. It might be time to give it another look.It's not that 2021 has been unkind to Bristol Myers Squibb (BMY). It's gained 9.1% this year, but that's just about half the S&P 500's 18% gain. There's nothing wrong with the company right now. The worry is that patents on some of its drugs, including multiple myeloma treatment Revlimid, will expire in 2025, opening the door for competitors to offer cheaper versions of the drug.But that's a setup for potentially big gains over the next few years, says Dan Eye, head of asset allocation and equity research at Fort Pitt Capital Group. Bristol Myers now trades at 8.8 times 12-month forward earnings, a discount to peers Pfizer (PFE) and Merck (MRK), which both trade at 12 times. But Bristol's growth is expected to be roughly the same as its peers. Should Bristol Myers Squibb trade at 12 times its projected 2023 earnings of $8.50, the stock would go past the $100 mark by early that year. "There's no reason that Bristol Meyers can't re-rate to a 12 multiple," Eye says. "There's a ton of upside there."Key to a higher valuation is the company's pipeline of new drugs, which can offset any hit to market share for its current offerings. The company has several new drugs in the pipeline, such as thrombosis treatment Factor XIa and TYK2, which treats severe plaque psoriasis. Bristol is expected to reveal new data on the efficacy of those drugs and if it gets Food and Drug Administration approval for the drugs -- and sees solid sales from them -- the market could reward the company with a higher multiple, even as earnings rise. "The catalyst is investors getting more comfortable with Bristol's pipeline," Eye says. Bristol "can replace the revenue that's going to be impacted by generic competition."But even assuming that Bristol's valuation remains mired in the single-digits, it would still be a stock to own. Bristol is expected to grow earnings at a 5% clip, and that should be able to keep the stock rising, even if its multiple remains right where it is (Investors will get a sense of what its earnings look like when it reports second-quarter results on Wednesday.) But the dividend yield of 2.9% makes the potential for an attractive total return, especially with the S&P 500 yielding just 1.3% or so. Not only does that dividend appear safe, but it should grow, too, thanks to free cash flow that should total nearly 40% of its current market capitalization of $153 billion from 2021 through 2023."That gives them optionality of raising the dividend yield," Eye says.The stock could see big gains in the comings years. Meanwhile, investors are getting paid to wait.