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Bullish On Bristol-Myers
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Highlights include Bristol Myers Squibb Co. (BMY), Exelixis, Inc. (EXEL), ZymoGenetics, Inc. (ZGEN), Sanofi-Aventis SA (SNY) and AstraZeneca plc (AZN).
We continue to believe the shares of Bristol-Myers Squibb (BMY) are attractive at their current price based on valuation, strong expected EPS growth and progress in reinvesting in higher growth opportunities. The recently announced $1 billion extension in cost cuts in 2012-2013 and extension of the Abilify agreement with Otsuka are the latest examples that management is taking meaningful steps to prepare for the loss of exclusivity of Plavix.
Management's 2009 EPS guidance of $1.85 - $2.00 implies growth of between 6% and 15%. Revenue is expected to grow in the low-single digits, which includes a significant foreign exchange headwind. Reaffirmed was guidance of EPS growing at a CAGR of at least 15% from 2007 through 2010.
We expect earnings growth to remain very strong through 2011 from a combination of mid-to-high single digit sales growth and operating margin improvement. Gross margins should widen over that period as a result of price increases on certain products and manufacturing efficiencies.
Operating margins will dually benefit as $1.5 billion is wrung out of operating expenses through 2010. We expect the result to be operating margins 420 basis points wider in 2011 relative to 2008. We currently model EPS CAGR of over 12% from 2008 through 2011.
However, there are concerns. Bristol will become significantly growth-challenged starting in 2012. The U.S. patent covering Plavix expires in November 2011, and Avapro's patent expires in March 2012. We currently model companywide revenue to fall 9.6% in 2012 and another 7% in 2013.
Despite the additional $1 billion of cost cuts expected to take affect in 2012/2013, EPS will fall in 2012. We note however, that a number of high-potential products will be launched by the beginning of 2011 which we expect to build the base for the next wave of significant earnings growth at Bristol. Apixaban, belatecept, saxagliptin and dapaglaflozin are all potentially $1+ billion drugs and together should generate almost $2 billion in sales by 2013.
We believe Bristol can return to positive EPS growth beginning in 2014 and possibly sooner, depending on possible further licensing/partnering deals and/or acquisitions. Take for example the recent deals with Exelixis (EXEL), ZymoGenetics (ZGEN) and Otsuka. We also expect Bristol to continue to look to expand their biologics platform, cut costs and reinvest in higher growth opportunities.
We believe there's potential for significant upside to our forecast given management's skill and willingness to look outside the company for additional growth opportunities. Bristol has recently built up a significant cash balance and announced plans to wring out another $1 billion in cash from working capital by 2010. We think they will be looking to put this cash to work in the form of partnering deals or an acquisition.
We believe Bristol offers investors significantly more potential for growth than its peers and believe the premium the shares trade at is warranted. The company's strong financial position and relatively cyclically resilient product portfolio should provide for continued strong financial performance, even during protracted softness in the economy. While the Plavix patent expiration will continue to be a concern, we believe it's manageable based on the reasons stated above.
We also believe that Bristol will be active on the M&A front in 2009. We think Sanofi-Aventis (SNY) or AstraZeneca (AZN), both partnering with Bristol on key drugs, could be interested.
In the meantime, Bristol should continue to look for small-to-mid size deals of its own throughout the year. Our price target is $27, or 14.1x our 2009 EPS forecast of $1.91. The current dividend yield is 6.3%.
We continue to believe the shares of Bristol-Myers Squibb (BMY) are attractive at their current price based on valuation, strong expected EPS growth and progress in reinvesting in higher growth opportunities. The recently announced $1 billion extension in cost cuts in 2012-2013 and extension of the Abilify agreement with Otsuka are the latest examples that management is taking meaningful steps to prepare for the loss of exclusivity of Plavix.
Management's 2009 EPS guidance of $1.85 - $2.00 implies growth of between 6% and 15%. Revenue is expected to grow in the low-single digits, which includes a significant foreign exchange headwind. Reaffirmed was guidance of EPS growing at a CAGR of at least 15% from 2007 through 2010.
We expect earnings growth to remain very strong through 2011 from a combination of mid-to-high single digit sales growth and operating margin improvement. Gross margins should widen over that period as a result of price increases on certain products and manufacturing efficiencies.
Operating margins will dually benefit as $1.5 billion is wrung out of operating expenses through 2010. We expect the result to be operating margins 420 basis points wider in 2011 relative to 2008. We currently model EPS CAGR of over 12% from 2008 through 2011.
However, there are concerns. Bristol will become significantly growth-challenged starting in 2012. The U.S. patent covering Plavix expires in November 2011, and Avapro's patent expires in March 2012. We currently model companywide revenue to fall 9.6% in 2012 and another 7% in 2013.
Despite the additional $1 billion of cost cuts expected to take affect in 2012/2013, EPS will fall in 2012. We note however, that a number of high-potential products will be launched by the beginning of 2011 which we expect to build the base for the next wave of significant earnings growth at Bristol. Apixaban, belatecept, saxagliptin and dapaglaflozin are all potentially $1+ billion drugs and together should generate almost $2 billion in sales by 2013.
We believe Bristol can return to positive EPS growth beginning in 2014 and possibly sooner, depending on possible further licensing/partnering deals and/or acquisitions. Take for example the recent deals with Exelixis (EXEL), ZymoGenetics (ZGEN) and Otsuka. We also expect Bristol to continue to look to expand their biologics platform, cut costs and reinvest in higher growth opportunities.
We believe there's potential for significant upside to our forecast given management's skill and willingness to look outside the company for additional growth opportunities. Bristol has recently built up a significant cash balance and announced plans to wring out another $1 billion in cash from working capital by 2010. We think they will be looking to put this cash to work in the form of partnering deals or an acquisition.
We believe Bristol offers investors significantly more potential for growth than its peers and believe the premium the shares trade at is warranted. The company's strong financial position and relatively cyclically resilient product portfolio should provide for continued strong financial performance, even during protracted softness in the economy. While the Plavix patent expiration will continue to be a concern, we believe it's manageable based on the reasons stated above.
We also believe that Bristol will be active on the M&A front in 2009. We think Sanofi-Aventis (SNY) or AstraZeneca (AZN), both partnering with Bristol on key drugs, could be interested.
In the meantime, Bristol should continue to look for small-to-mid size deals of its own throughout the year. Our price target is $27, or 14.1x our 2009 EPS forecast of $1.91. The current dividend yield is 6.3%.
Read the full analyst report on BMY
Read the full analyst report on ZGEN
Read the full analyst report on SNY
Read the full analyst report on AZN
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