Bristol Myers Squibb Co (BMY) is the Stock Pick of the Week as well as one of October’s Most Attractive Stocks.
Like all of our Most Attractive Stocks the company has (1) high and rising economic profits (as distinct from accounting profits) and (2) a cheap valuation. As shown in our free report on BMY, the company’s ROIC (18.6%) is in the Top Quintile of all the companies we cover and its economic earnings are growing. At the same time, the stock’s valuation implies that BMY’s profits will decline by more than 35% and never grow again. In other words, the stock market is predicting a permanent decline of more than 35% in BMY’s profits. The market is setting the profit growth bar quite low for this stock.
- Our discounted cash flow analysis shows that BMY’s current valuation (stock price of $27.16) implies that the company’s profits will decline by 35% and never grow again.
- The company grew its economic earnings by $307.5mm (12% increase) during its last fiscal year.
- The company has $9,507mm in Excess Cash, which we remove from our Invested Capital calculation. $9,507mm million is more than 20% of BMY’s market cap.
For details on what causes the difference between Economic Versus Accounting Profits, see Appendix 3 on page 10 of our report on BMY. See Appendix 4 to learn how BMY increased NOPAT by cutting costs and increased its NOPAT Margin from 19.4% to 22.7%. See Appendix 5 for details on how BMY grew Invested Capital while revenue dropped and lowered Invested Capital Turns. Appendix 7 (in the Return on Invested Capital section) shows how the company’s increase in NOPAT Margin outweighed the decrease in Invested Capital Turns to result in an increase in ROIC (from 17.5%% to 18.6%) and Economic Earnings, which rose by $307.5.
Note: Stock pick of the week is updated every Tuesday.