First Look at Bristol-Myers Squibb (BMY).

Preferred stock: none

Bonds: none

What do they do to satisfy customers – Bristol-Myers Squibb discovers, develops, and markets pharmaceuticals for various indications, such as cardiovascular and infectious diseases, cancer, and psychiatric disorders. Unlike some of its more diversified peers, Bristol has exited several nonpharmaceutical businesses to focus on branded drugs.  Plavix is their biggest revenue product.  Plavix is a heart attack prevention drug.

Morningstar’s take – Adept at partnerships, Bristol-Myers Squibb has built a strong portfolio of drugs and a robust pipeline. While the company faces major patent losses beginning in 2012, we expect Bristol’s next generation of drugs will fill the patent holes over the next decade. Further, by selling off business lines unrelated to its core pharmaceutical strategy, the company has been building a war chest of cash to make acquisitions and new partnership deals.

DIVIDEND RECORD: Steady dividend payer since at least 1987.  Strong dividend grower – the quarterly dividend was $0.09 in 1987 and it has grown to $0.34 quarterly.  That is about 11% straight-line dividend growth per year.

Dividend: $0.34

Dividend yield: 4.17% ($1.36 annual dividend / $32.59 share price)

Dividend payout: 63% using recent Google Finance reported EPS of $2.16 –OR- 58% using average adjusted earning power of $2.35 per share.

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EARNING POWER: $2.35 @ 1.69 billion shares (*Note: This amount only includes net income from continuing operations.  There was significant net income from discontinued operations in 2009 ($8 billion) and 2008 ($2.5 billion).  The earning power would be higher if I included the discontinued ops, but that would skew earning power going forward).

(earnings adjusted for changes in capitalization – typically share buybacks and/or additional shares created)

EPS

Net income*

Shares

Adjusted EPS

2007

$1.09

$1,968 M

1,980 M

$1.16

2008

2.62

$3,686 M

1,999 M

$2.18

2009

$5.34

$4,420 M

1,974 M

$2.62

2010

$1.79

$4,513 M

1,713 M

$2.67

2011

$2.16

$5,260 M

1,700 M

$3.11

Five year average adjusted earnings per share is $2.35 @ 1.69 billion shares

Consider contrarian buying below $18.80 (8 times average adjusted EPS)

Consider value buying below $28.20 (12 times average adjusted EPS)

Bristol-Myers Squibb (BMY) is currently trading at 13.86 times average adjusted EPS.  This is stock is priced for investment.

Consider speculative selling above $47.00 (20 times average adjusted EPS)

BALANCE SHEET – Bristol-Myers Squibb has a strong balance sheet.

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Book value per share: $9.44

Price to book value ratio: 3.45 (under 1.0 is good)  Wait for the share price to retreat below $20.00 to drop this ratio down.

Current ratio: 1.96 latest quarter (over 2.0 is good)  BMY has plenty of current assets to cover current liabilities.

Quick ratio: 1.12 latest quarter (over 1.0 is good)  BMY has 112% of its current liabilities in cash alone.  This is good.

Debt to equity ratio: 0.33 (lower is better)  A nice low debt rate.

Percentage of total assets in plant, property, and equipment: 13.71% (the higher the better)  I like companies with a higher percentage of real assets relative to total assets.  BMY has 16% of its total assets in goodwill and another 9.5% in intangibles.  I would want to know if any of its most profitable drugs are going generic anytime soon.  That event will drop the value of their assets.

CONCLUSION – As usual, the best time to buy BMY in recent years was in March 2009 when it was below $20.00.  It was a value investment back then.  It is still a pretty good buy at 13.86 times average adjusted earning power.  Bristol-Myers Squibb has been a steady dividend payer and a strong dividend grower.  The dividend is very stable and payout ratios look good because there is still ample room to pay the dividend if some of its drugs go generic.  The only thing that bothers me is the high price to book value ratio, but that will come down as the worldwide recession returns.  The company has a lot of current assets and cash to cover upcoming.  I would read the company’s quarterly financials and annual reports to learn what product provide most of the company’s profits.  Their biggest revenue producing product, Plavix, is going generic in the USA this year.  US sales of all BMY drugs account for 65% of sales, Europe accounts for 17%, and Canada and Japan at 3% each.  Read the beginning of the 2011 annual report for an excellent overview of their products, their revenues, and when they go generic: http://quote.morningstar.com/stock-filing/Annual-Report/2011/12/31/t.aspx?t=&ft=10-K&d=82bed019190b624cc2daf43fd54c3551

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DISCLOSURE – I don’t own Bristol-Myers Squibb (BMY).

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Published in: on March 6, 2012 at 3:43 pm  Leave a Comment  

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