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.