Bristol-Myers Back to Neutral

Zacks

We are reverting to a Neutral recommendation on Bristol-Myers Squibb Company (BMY) from Underperform as we believe that the current price reflects all the negative news. Consequently, there is limited scope for stock price appreciation at Bristol-Myers. The stock carries a Zacks Rank #3 (Hold) in the short run.

Why Back to Neutral?

Bristol-Myers reported earnings (excluding special items) of 44 cents per share in the second quarter of 2013, down 9% from the year-ago figure. The decline was due to reduced sales of Plavix and Avapro. Both drugs, co-developed with Sanofi (SNY), went off patent in the U.S. last year.

The genericization of Plavix and Avapro in the U.S. has resulted in a significant loss of revenues. The modest revenues reported by the company in the second quarter of 2013 were primarily due to lower sales of both drugs.

Avapro/Avalide recorded a 52% decline in global net sales to $56 million in the second quarter of 2013. Global net sales of Plavix plummeted 94% to $44 million in the second quarter of 2013. U.S. sales of the drug plunged 97% to $18 million. We believe that Bristol-Myers has entered a challenging period following Plavix’s genericization.

Following the lackluster performance, the company trimmed its 2013 guidance. Bristol-Myers now expects adjusted earnings for 2013 in the range of $1.70-$1.78 (old guidance: $1.78–$1.88). The company slashed its outlook reflecting negative currency movement and the recall of Fervex, a local OTC product in France and other international markets. Bristol-Myers also cut its revenue guidance. Moreover, anti-clotting drug, Eliquis, co-developed with Pfizer Inc. (PFE) also performed disappointingly in the second quarter of 2013.

We believe the current price incorporates all the negative news and are reverting to a Neutral recommendation on the stock.

A Stock worth Considering

While we expect Bristol-Myers to perform in line with its peers and industry levels in the coming months and advice investors to wait for a better entry point before accumulating shares, one can look at Actelion Ltd. (ALIOF) as a good buying opportunity. This biopharmaceutical company – sporting a Zacks Rank #1 (Strong Buy) – has performed encouragingly of late with potential to rise significantly from current levels.

Read the Full Research Report on BMY
Read the Full Research Report on SNY
Read the Full Research Report on PFE
Read the Full Research Report on ALIOF


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