Stocks

ModernGraham Valuation: Bristol-Myers Squibb Co. (BMY)

moneyCompany Profile (obtained from Google Finance): Bristol-Myers Squibb Company (BMS) is engaged in the discovery, development, licensing, manufacturing, marketing, distribution and sale of biopharmaceutical products on a global basis. It operates in BioPharmaceuticals. Its products are sold worldwide, primarily to wholesalers, retail pharmacies, hospitals, government entities and the medical profession. It manufactures products in the United States (U.S.), Puerto Rico and in 6 foreign countries. In February 2012, it acquired Inhibitex, Inc. (Inhibitex). In August 2012, the Company announced the acquisition of Amylin Pharmaceuticals, Inc. In August 2012, Synergy Pharmaceuticals Inc announced that it signed an Asset Purchase Agreement with the Company and acquired the assets related to FV-100, an orally available nucleoside analogue, being developed for the treatment of shingles.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 3/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – FAIL
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $27.55
MG Opinion Overvalued
Value Based on 3% Growth $24.22
Value Based on 0% Growth $14.20
Market Implied Growth Rate 10.98%
Net Current Asset Value (NCAV) -$6.99
PEmg 30.45
Current Ratio 1.28
PB Ratio 5.66

Balance Sheet – 9/30/2013 

Current Assets $10,627,000,000
Current Liabilities $8,279,000,000
Total Debt $6,532,000,000
Total Assets $36,804,000,000
Intangible Assets $15,822,000,000
Total Liabilities $22,078,000,000
Outstanding Shares 1,639,000,000

Earnings Per Share

2013 (estimate) $1.49
2012 $1.48
2011 $2.16
2010 $1.79
2009 $1.63
2008 $1.58
2007 $0.88
2006 $0.62
2005 $1.44
2004 $1.21
2003 $1.59
2002 $1.06

Earnings Per Share – Modern Graham 

2013 (estimate) $1.67
2012 $1.75
2011 $1.79
2010 $1.51
2009 $1.32
2008 $1.16

Conclusion:

Bristol-Myers Squibb Co. has displayed stable earnings and dividends, but does not currently qualify for either the Defensive Investor or the Enterprising Investor.  For the Defensive Investor, the company does not have a high enough current ratio and trades at high PEmg and PB ratios.  For the Enterprising Investor, the current ratio is too low and there is too much debt.  As a result, both investor types should do considerably further research, including reviewing our recent reviews of Pfizer (ModernGraham Valuation) and Merck (ModernGraham Valuation) and probably wait until a better opportunity arises before adding Bristol-Myers Squibb to their individual portfolios.  From a valuation perspective, the company has grown EPSmg (normalized earnings) from $1.16 in 2008 to an estimated $1.67 for 2013.  This growth has been fairly consistent until recently, with EPSmg dropping slightly in 2012 and again for 2013.  The market’s implied growth rate is over 10%, which is well above what has been shown historically, and therefore the company appears to be overvalued at this time.

What do you think?  Do you agree that Bristol-Myers Squibb is overvalued?  Is the company not suitable for both Defensive Investors and Enterprising Investors?  Leave a comment or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Bristol-Myers Squibb Co. (BMY) at the time of publication and had no intention of entering into a position within the next 72 hours.

Photo Credit:  Andrew Magill

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