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Friday July 23, 2010
Bristol-Myers Squibb (BMY): 'Solid, quality play'
by Chuck Carlson, editor The DRIP Investor  New products are the life-blood of any pharmaceutical company. Unfortunately, blockbuster drug breakthroughs have been fairly rare in recent years, lowering valuations for pharmaceutical stocks. The good news is that the lone drug stock in the Editor’s Portfolio, Bristol-Myers Squibb (BMY), has had a spate of good news recently on the drug-development front. The company recently announced that a mid-stage trial of an experimental arthritis drug had met its goal, supporting further development of the drug. The 16-week study evaluated the safety and efficacy of the drug in 132 patients with rheumatoid arthritis that was inadequately controlled with the drug methotrexate. All three treatment groups showed statistically significant improvement over the placebo at week 12. Bristol-Myers Squibb also announced that it stopped early a clinical trial of its Apixaban medication as a result of clear evidence of a clinically important reduction in stroke and systemic embolism in patients with atrial fi brillation. 
This analysis also demonstrated an acceptable safety profi le for Apixaban compared to aspirin. Apixaban, which is currently being developed by Bristol-Myers Squibb and Pfizer, is an investigational oral factor Xa inhibitor, a new class of agents being studied in the prevention and treatment of blood clots. In 2007, Pfizer and Bristol-Myers Squibb entered into a worldwide collaboration to develop and commercialize Apixaban, which was discovered by Bristol-Myers Squibb. Bristol-Myers stock jumped on the news, as investors realized that continued success in the development of these treatments could open up potentially huge markets for the company. Still, while the developments represent important stepping-stones to eventual approval of the drugs, there are no sure-things when it comes to new drug approvals. I like Bristol-Myers Squibb’s long-term total-return prospects. Per-share profi ts should be in the vicinity of $2.17 per share this year, jumping to $2.36 per share in 2011. Based on the 2010 estimate, the stock trades at 12 times earnings, not a huge valuation. Bristol-Myers Squibb has beaten the consensus earnings estimate in each of the last two quarters, so that profit estimate may prove conservative. Dividend investors take note that the stock pays a quarterly dividend of $0.32 per share, giving the issue a yield of nearly 5%. Bristol-Myers Squibb boosted the dividend at the end of 2009, so the firm is signaling that it is confident that it can continue to pay the dividend. Based on the 2010 earnings estimate of $2.17 per share, the dividend-payout ratio is less than the 60% threshold at which I start to get a bit nervous. Should the stock market remain volatile, I would expect quality, dividend-paying stocks such as Bristol-Myers to lead the market as investors move toward more “defensive” companies whose profits are not so dependent on the overall economic cycle. Bristol-Myers Squibb, with its attractive yield, earnings-growth potential, and new-product pipeline, represents a solid play in the sector. Learn more about this financial newsletter at Chuck Carlson's The DRIP Investor. |
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