Bristol-Myers Squibb: Steady prescription

The pharmaceutical leader offers a consistent track record, strong new product pipeline, and generous yield.

By TheStockAdvisors Dec 14, 2011 1:30PM
By Stephen Leeb, Income Performance Letter

While they don’t always deliver eye-popping growth, stocks that offer a steady stream of growing income are must-haves for the conservative investor.

With that in mind, we are now recommending Bristol-Myers Squibb (BMY), the $48 billion giant, as a dependable income play.

Because patent protection lasts 20 years from the date of application, pharmaceutical companies able to successfully develop and market major drugs enjoy lucrative and unchallenged sales for a number of years.

But new products must continually be developed to offset the sales declines that accompany patent loss.

They are key to keeping a company’s cash-generating engines churning relatively uninterrupted. Bristol-Myers Squibb fits this bill nicely.

We sold Bristol-Myers in early 2010 due to uncertainty over whether the company could compensate for the May 2012 expiration of its U.S. patent on the hugely successful Plavix (the #2 selling drug in the country).

In addition, its fifth-best selling drug Avapro/Avalide, with $1.2 billion in 2010 net sales will similarly lose U.S. patent protection in March 2012. However, in recent months, Bristol-Myers has shown amazing progress in re-energizing its pipeline.

One of its most promising new products is Yervoy, a treatment for late stage melanoma that has exhibited very good efficacy during trials.

Yervoy stimulates the immune system to recognize and attack cancer cells, and is being further tested for use against other cancers such as lung and prostate cancer.

If the drug’s use can be expanded to treat more common cancers, Yervoy has the potential to be a multi-billion product in the league of Plavix.

The drug was launched in the U.S. in April, and is delivering on its promise; second-quarter sales were $95 million, fantastic for a newly-launched drug. Approval to market in the E.U. was granted in July.

During the second quarter, Bristol-Myers booked a 14% year-on-year improvement in net sales, grew EPS by 4% and revised its 2011 earnings guidance upwards to $2.20-$2.30 per share despite headwinds from U.S. health care reform and E.U. austerity measures.

Sales for new products were strong across the board and the company received a string of new approvals. Plus, encouraging results from a number of late-stage clinical studies make the company’s pipeline arguably one of the best in the industry.

Reflecting the loss of Plavix exclusivity, the company expects 2013 adjusted EPS to be around $1.95, after which new products are expected to restart earnings growth.

The company generates more than $1 billion in free cash flow annually and had $5 billion in cash at the end of June.

The stock is trading at just 13 times projected 2013 EPS, a reasonable valuation given BMY’s consistent track record, strong pipeline and generous yield.

Related articles:

Tags: BMY


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

123 rated 1
262 rated 2
480 rated 3
651 rated 4
649 rated 5
629 rated 6
616 rated 7
496 rated 8
346 rated 9
111 rated 10

Top Picks

TAT&T Inc9



Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.