Stock Pick of the Week: Buy Bristol Myers Squibb Co (BMY) – Very Attractive Rating

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.

HIDDEN GEMS:

  1. 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.
  2. The com­pany grew its eco­nomic earn­ings by $307.5mm (12% increase) dur­ing its last fis­cal year.
  3. 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.

As per Invest­ment Strat­egy 101 and How to make money pick­ing stocks, BMY fits the Risk/Reward pro­file of a great stock to buy.

See Finance 101 and Eco­nomic Ver­sus Account­ing Prof­its for more detail on why account­ing prof­its are not reli­able indi­ca­tors of cor­po­rate prof­itabil­ity or value creation.

Note: Stock pick of the week is updated every Tuesday.

Leave A Response

* Denotes Required Field