Ovarian cancer is the fifth leading cause of cancer-related deaths among U.S. women and is regarded ...
Bristol-Myers Squibb Plus Celgene
09/27/2019 5:00 am EST
In January 2019, Bristol-Myers Squibb Company (BMY) agreed to buy Celgene (CELG) in a deal with an equity value of $74 billion; the deal is expected to close at year end, notes growth and income expert Crista Huff, editor of Cabot Undervalued Stocks Advisor.
We're added Bristol-Myers, to our Special Situations Portfolio as a Strong Buy. The company markets a long list of pharmaceuticals, including Coumadin and Eliquis, to treat cardiovascular, oncology and immune disorders. Celgene markets therapies, including Revlimid, for cancer and immunological diseases.
As part of the M&A transaction, Amgen (AMGN) will purchase Celgene’s OTEZLA, a psoriasis treatment, for $13.4 billion. That cash influx will be spent quite soon, because Bristol-Myers’ financial priorities include share repurchases, debt repayment and annual dividend increases.
In fact, Bristol-Myers just upped their accelerated share repurchase authorization by $2 billion, from $5 billion to $7 billion. Shareholders typically receive a 2% dividend increase in early February.
From my perspective, BMY shares are looking attractive for the first time in years. Let me start by making this clear: BMY does not fit my normal growth and value criteria. That’s why I’m sticking it here in the Special Situations Portfolio.
Bristol-Myers’ strong double-digit earnings growth of years past has given way to mid-single digit earnings growth expectations in 2019 and 2020, about 7% and 4%. And the debt levels are not only high but a bit unquantifiable, since the company is in the midst of the Celgene purchase.
However, the price/earnings ratio (P/E) is surprisingly low at 11.2. In glancing at my notes from years past, BMY carried a P/E of 18 in 2017 and 32 in 2015. Importantly, I can’t possibly be the only stock analyst who notices this uncharacteristic valuation.
I normally wait until a newly merged company has reported two quarters of results before I consider buying the stock. However, the low P/E and the prompt and successful sale of OTEZLA are causing me to believe that BMY is offering a capital gain opportunity sooner rather than later.
In addition, Celgene has been delivering 20%-30% EPS growth for quite a few years, and is expected to grow EPS by another 22% this year. The stock — with a yield 3.4% — is rated a "Strong Buy".
Related Articles on HEALTHCARE
Viemed Healthcare (VMD), through its wholly owned subsidiaries Sleep Management and Home Sleep, is a...
Zoetis (ZTS) is among the top global companies in the discovery, development, manufacture, and marke...
The pandemic driven recession isn’t even a speed bump for AbbVie (ABBV), a biopharmaceutical g...