Like a champion boxer on the ropes, Bristol-Myers Squibb(NYSE: BMY) finds itself in a challenging position. Specifically, the pharmaceutical giant's shares have declined by a disappointing 11.6% over the prior five years while the benchmark S&P 500 has delivered total returns of 97.5%, including dividends.
As a result of this significant underperformance, Bristol-Myers Squibb's stock trades at just 8 times forward earnings at current levels, well below the S&P 500's multiple of 21.5. Let's examine whether this beaten-down pharma stock presents a compelling opportunity for value and income-focused investors at the start of 2025.
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A proven innovator faces headwinds
Bristol-Myers Squibb's recent struggles stem from concerns about upcoming patent expirations for key drugs like Opdivo and Eliquis in 2028. The company also continues to navigate generic competition for its cancer drug Revlimid, which it acquired as part of its 2019 deal for cancer specialist Celgene.
However, the drugmaker's third-quarter 2024 results paint a more encouraging picture. Revenues grew 8% year over year to $11.9 billion in the most recent quarter, with U.S. revenues increasing 9% to $8.2 billion and international revenues climbing 7% to $3.7 billion. This broad-based growth suggests the company's commercial strength extends well beyond its legacy portfolio.
Strategic acquisitions fuel future growth
Management isn't sitting idle in the face of these patent challenges. The company has executed several strategic acquisitions, including Karuna Therapeutics, which brought the recently approved schizophrenia treatment Cobenfy to its neuroscience portfolio. Wall Street thinks this next-generation schizophrenia treatment holds multibillion-dollar peak sales potential, potentially giving the drugmaker its next flagship product.
What's the big deal? These bolt-on deals strengthen Bristol's pipeline and target a variety of high-growth therapeutic areas. More specifically, the company's focus on rare diseases, immunology, and cancer provides multiple avenues for future growth in areas where innovative treatments command strong pricing power and rarely experience pushback from payers.
Value creation through execution
Bristol-Myers Squibb continues to demonstrate strong commercial execution through its growth portfolio. In Q3 2024, key products like melanoma treatment Opdualag and heart medication Camzyos helped drive an 18% revenue increase to $5.8 billion.
The quarter saw exceptional performance from several treatments:
Reblozyl (anemia): 80% growth.
Breyanzi (lymphoma): 143% growth.
Camzyos: 129% growth.
This double-digit growth in new drug sales showcases the company's ability to successfully commercialize cutting-edge treatments and convert pharmaceutical innovation into shareholder value. Currently, Bristol-Myers Squibb offers investors a 4.34% dividend yield, supported by a reasonable 59.8% payout ratio.
The company's dividend track record is particularly noteworthy, having maintained payments for 93 consecutive years and increased them annually for the past 16 years. With a five-year dividend growth rate of 7.57%, Bristol-Myers Squibb stands among the pharmaceutical industry's leaders in dividend growth.
Looking ahead, the company appears well positioned to maintain this momentum. A robust drug pipeline, strong cash flows, and a sustainable payout ratio provide Bristol-Myers Squibb with ample flexibility to continue its dividend growth while investing in future initiatives.
A value proposition worth considering
While patent cliffs and generic competition create legitimate near-term concerns, Bristol-Myers Squibb's proven innovation engine and strategic acquisitions paint a compelling longer-term picture. The company's robust pipeline, recent drug approvals, and expansion into new therapeutic areas provide opportunities for future growth.
However, investors will need patience as these opportunities materialize. For income-focused value investors willing to weather some uncertainty, Bristol Myers Squibb's combination of an attractive yield, outstanding dividend growth history, and deeply discounted valuation creates an appealing entry point at the start of 2025.
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George Budwell has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb. The Motley Fool has a disclosure policy.
