Summary
- Bristol-Myers Squibb reported a solid Q4 and pretty good guidance for 2019, but revenue growth is slowing.
- In that context and given poor new drug development the last few years, it makes sense for BMS to look to revitalize matters by acquiring Celgene.
- BMS is enthusiastic about the deal. I think it makes sense and will go through, and added more Celgene as a result.
- I remain neutral on BMS.
BMS reports Q4 and guides for 2019
Bristol-Myers Squibb (BMY) reported Q4 and full-year results last week. Revenues were $6 B, up 10% (12% adjusted for currency). R&D was $1.4 B, 23% of revenues, well above the 15% that stalwarts such as Pfizer (PFE) and Merck (MRK) typically run but down from higher levels over the past few years. EPS for Q4 were $0.73 (I only use GAAP for BMY), and the company had a net cash position of $3.3 B. EPS for all of 2019 were $3.03 on revenues of $22.6 B.
BMY guided for mid-single digit revenue growth, thus I am targeting nearly $24 B not including the Celgene (CELG) deal. GAAP EPS are projected to be around $3.80. At Friday's closing price of $48.93, that puts BMY near 13X forward EPS. This is below-market for Big Pharma and partly reflects the CELG effect; BMY was around $52.50 before its bid and thus would have been near 14X forward EPS. Two factors make me agree with the market that BMY deserves a somewhat restrained P/E:
