Pharmaceuticals Stocks

Bristol-Myers Squibb Company Valuation – February 2016 $BMY

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Companies Benjamin Graham Would Invest In Today – February 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Bristol-Myers Squibb Company (BMY) fares in the ModernGraham valuation model.

Company 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 across the world. The Company’s products are sold to wholesalers, retail pharmacies, hospitals, government entities and the medical profession. The Company manufactures its products in the United States, Puerto Rico and in six foreign countries. The Company promotes the use of its products directly to healthcare professionals and providers, such as doctors, nurse practitioners, physician assistants, pharmacists, technologists, hospitals, Pharmacy Benefit Managers (PBMs) and Managed Care Organizations (MCOs). It also provides information about the use of its products to consumers in the United States through direct-to-consumer print, radio, television, and digital advertising and promotion. In addition, the Company holds rights to F001287, which is a preclinical, small-molecule IDO1-inhibitor.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of BMY

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $110,204,407,891 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.30 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -53.15% Fail
6. Moderate PEmg Ratio PEmg < 20 43.36 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 7.52 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.30 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.73 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

BMY value chart February 2016

EPSmg $1.47
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $21.37
MG Value based on 0% Growth $12.53
Market Implied Growth Rate 17.43%
Current Price $63.91
% of Intrinsic Value N/A

Bristol-Myers Squibb Co does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $2.21 in 2012 to an estimated $1.47 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 17.43% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price. Bristol-Myers Squibb Co scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

BMY charts February 2016

Net Current Asset Value (NCAV) -$4.21
Graham Number $20.15
PEmg 43.36
Current Ratio 1.30
PB Ratio 7.52
Dividend Yield 2.33%
Number of Consecutive Years of Dividend Growth 10

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Most Recent Balance Sheet Figures

Balance Sheet Information Dec2015
Total Current Assets $10,415,000,000
Total Current Liabilities $8,017,000,000
Long-Term Debt $6,550,000,000
Total Assets $31,748,000,000
Intangible Assets $8,300,000,000
Total Liabilities $17,482,000,000
Shares Outstanding (Diluted Average) 1,679,000,000

Earnings Per Share History

Next Fiscal Year Estimate $2.11
Dec2015 $0.93
Dec2014 $1.20
Dec2013 $1.54
Dec2012 $1.16
Dec2011 $2.16
Dec2010 $1.79
Dec2009 $5.34
Dec2008 $2.62
Dec2007 $1.09
Dec2006 $0.81
Dec2005 $1.52
Dec2004 $1.21
Dec2003 $1.59
Dec2002 $1.06
Dec2001 $0.95
Dec2000 $1.84
Dec1999 $1.81
Dec1998 $1.35
Dec1997 $1.57
Dec1996 $1.40

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.47
Dec2015 $1.24
Dec2014 $1.45
Dec2013 $1.85
Dec2012 $2.21
Dec2011 $2.69
Dec2010 $2.74
Dec2009 $2.91
Dec2008 $1.61
Dec2007 $1.15
Dec2006 $1.20
Dec2005 $1.35
Dec2004 $1.29
Dec2003 $1.37
Dec2002 $1.31
Dec2001 $1.45
Dec2000 $1.67

Recommended Reading:

Other ModernGraham posts about the company

27 Companies in the Spotlight This Week – 12/20/14
Bristol-Myers Squibb Company Annual Valuation – 2014 $BMY
10 Companies in the Spotlight This Week – 12/21/13
ModernGraham Valuation: Bristol-Myers Squibb Co. (BMY)
27 Companies in the Spotlight This Week – 12/20/14

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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