Summary
- As is par for the course, Bristol reported solid earnings last week and beat expectations. They also raised guidance for 2020.
- At under 10x 2020 earnings, and at 8.4x 2021 earnings, BMY appears far too cheap given its track record in developing new pharmaceuticals.
- Our long-term drug by drug analysis, coupled with debt reductions and free cash flow, imply earnings likely exceeding $8 per share in 2 to 3 years.
- The risk reward appears quite favorable, with downside to $55 perhaps,and long-term upside to $90+.
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Bristol-Myers (BMY) reported results last week, beating on both revenue and earnings per share. The company has a long history of exceeding guidance, and even raised 2020 estimates look beatable this year. In the quarter, the company earned $1.63 (vs $1.49 estimates, and up an eye-popping 38% year over year).
The Celgene deal was obviously enormously accretive as we discussed in our initiation piece a year ago. We had estimated 2020 EPS would “conservatively” come in at $5.74. At the time, the Street was expecting $4.82 in 2020 EPS. Obviously, Street estimates can be dramatically wrong, even for well followed, large names like Bristol. BMY's guidance put forth in early 2020 called for $6.00 to $6.20 in EPS.
In any case, the “easy” money was made after the deal closed and guidance for 2020 released (since our initiation piece, BMY is up 35%).
