2 Reasons Bristol Myers Squibb Shares Could Be a Bargain, Down 34% From Its All-Time High

Bristol Myers Squibb (BMY 0.46%) has struggled to manage the loss of exclusivity now that some of its best-selling drugs face competition from generics. The pharmaceutical giant’s disappointing results have pressured the stock in recent years; it is currently down about 34% from its 2022 record high.

The background is worrying. But the good news is that the company’s latest update has signaled what could be the start of a long-awaited revolution. Here are two reasons why Bristol Myers Squibb stock could make a great addition to your portfolio now.

Growth is on the way back

Drug manufacturers are constantly looking for the next blockbuster drugs to treat common ailments. A medical breakthrough can benefit patients and offer significant worldwide commercialization potential.

Bristol Myers has a long history of introducing such innovations. These include Eliquis, a blood thinner used to prevent stroke and blood clots, and Opdivo, a cancer immunotherapy. Indeed, the company’s strength is its diversification, with a portfolio of more than 30 products and an even larger clinical pipeline in areas such as hematology, oncology, cardiology, immunology and neuroscience.

On the other hand, drug patents have an expiration date. The company’s Revlimid, a drug used to treat multiple myeloma and lymphoma, lost market exclusivity in 2022. In the recently reported second quarter, Revlimid’s $1.3 billion in sales fell from a peak of 3 .3 billion dollars at the end of 2021. A similar dynamic occurred. with the company’s chemotherapy drug Abraxane.

The challenge for Bristol Myers Squibb was to replace lost revenue, which had hurt earnings, while forcing an internal realignment. The company is banking on a new generation of drugs, including several that have launched in recent years and are now gaining market adoption.

The strategy seems to be working. In Q2, total revenue rose 9%, the company’s strongest quarterly result since Q4 2021. Importantly, this rebound was driven by an 18% increase in the growth portfolio, offsetting the softer 2% growth from legacy business products.

The trends were strong enough that management raised guidance for the full year; it now targets revenue growth in the “upper end of the low-single-digit range,” compared to the previous outlook of just low-single-digit growth. The company now expects earnings per share (EPS) for the year to be between $0.60 and $0.70, up from its previously announced forecast of $0.55.

Image source: Bristol Myers Squibb.

There is compelling value with a dividend yield of nearly 5%.

The bullish case for Bristol Myers is that the company will recover a long-term sustainable growth trajectory. Several pipeline products in Phase 3 testing, with readings expected next year, could be a catalyst for an even stronger push. Investors have an opportunity to gain shares in this beaten-down healthcare leader in what could be the early stages of a comeback.

Part of the stock’s appeal as an investment is its valuation at a steep discount to its peers. The Wall Street consensus estimate for 2025 EPS is $7, so the stock is trading at a forward price-to-earnings (P/E) ratio of 7. This represents one of the cheapest earnings multiples in the pharmaceutical industry; you look like Pfizer, Sanofi, GSK, AbbVieand Merck it trades at an average P/E closer to 13.

It appears that the market remains skeptical of the company’s improved outlook, explaining the depressed valuation. My interpretation is that Bristol Myers Squibb is fundamentally undervalued, with room for that spread to converge more towards the group.

I’d also point out the stock’s quarterly dividend of $0.60 per share, which currently yields a compelling 4.9%. Management reiterated its commitment to support the payout, supported by strong underlying cash flow. Beyond any near-term financial noise, investors are paid to wait.

BMY PE ratio data (1 year ago) by YCharts.

What it all means for investors

I think Bristol Myers Squibb is worth considering for investors’ portfolios. If you have a long-term time horizon, the stock could turn out to be a bargain at today’s prices. The following quarterly results may reaffirm the company’s improved outlook and serve as a catalyst for the stock to rise.