Bristol Myers Squibb (NYSE: BMY) has struggled to manage the loss of exclusivity now that some of its top-selling drugs are facing competition from generics. Disappointing results from the pharmaceutical giant have pressured the stock in recent years; it's currently down about 34% from its record high in 2022.
The backdrop is concerning. But the good news is that the company's latest update signaled what could be the start of a long-awaited turnaround. Here are two reasons why Bristol Myers Squibb stock could make a great addition to your portfolio now.
A growth rebound is underway
Drugmakers constantly search for the next blockbuster drugs to treat common diseases. A medical breakthrough can benefit patients and provide significant commercialization potential worldwide.
Bristol Myers has a long history of introducing such innovations. These include its flagship Eliquis, a blood thinner used to prevent stroke and blood clots, and Opdivo, a cancer immunotherapy. Indeed, the company's strength is its diversification, with a portfolio of more than 30 products and an even larger clinical pipeline across fields like hematology, oncology, cardiology, immunology, and neuroscience.
On the other hand, drug patents have an expiration date. The company's Revlimid, a medication used to treat multiple myeloma and lymphoma, lost its market exclusivity in 2022. In the recently reported second quarter, Revlimid's $1.3 billion in sales were down from a peak of $3.3 billion in late 2021. A similar dynamic took place with the company's chemotherapy drug Abraxane.
The challenge for Bristol Myers Squibb has been to replace that lost revenue, which has impacted earnings while forcing an internal realignment. The company is betting on a new generation of drugs, including several that have launched in recent years and are now gaining market adoption.
It appears the strategy is working. In Q2, total revenue climbed by 9%, the strongest quarterly result for the company since Q4 2021. Importantly, this rebound was driven by an 18% increase in the growth portfolio, balancing the softer 2% increase from the legacy products side of the business.
The trends were strong enough that management hiked full-year guidance; it's now targeting revenue growth in the "upper end of a low single-digit range," compared to the prior outlook of just a low single-digit increase. The company now expects earnings per share (EPS) for the year of between $0.60 and $0.70, up from the $0.55 midpoint forecast announced earlier.
Image source: Bristol Myers Squibb.
There's compelling value with a nearly 5% dividend yield
The bullish case for Bristol Myers is that the company will reclaim a sustainable long-term growth trajectory. Several pipeline products in phase 3 trials, with readouts expected in the next year, could be a catalyst for even stronger momentum. Investors have the opportunity to pick up shares in this beaten-down healthcare sector leader in what may be the early stages of a comeback.
Part of the attraction of the stock as an investment is its valuation at a large discount to its peers. The consensus Wall Street estimate for 2025 EPS is $7, so shares are trading at a forward price-to-earnings (P/E) ratio of 7. That represents one of the cheapest earnings multiples in the pharmaceutical industry ; peers like Pfizer , Sanofi , GSK , AbbVie , and Merck are trading at an average P/E closer to 13.
It appears the market remains skeptical of the company's improved outlook, explaining the depressed valuation. My interpretation is that Bristol Myers Squibb is fundamentally undervalued, with room for that spread to converge higher toward the group.
I'd also point out the stock's $0.60-per-share quarterly dividend, currently yielding a compelling 4.9%. Management has reaffirmed a commitment to sustain the payout, backed by strong underlying cash flow. Beyond any near-term financial noise, investors are getting paid to wait.
BMY PE Ratio (Forward 1y) data by YCharts .
What it all means for investors
I believe Bristol Myers Squibb deserves consideration for investors' portofolios. If you have a long-term time horizon, the shares could prove to be a bargain at today's prices. The next few quarterly results may reaffirm the company's improved outlook, and serve as a catalyst for the stock to rally higher.
Dan Victor has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bristol Myers Squibb, Merck, and Pfizer. The Motley Fool recommends AstraZeneca Plc and GSK. The Motley Fool has a disclosure policy .
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