Following the release of the fourth quarter 2011 results, majority of the analysts covering Bristol-Myers Squibb Company (NYSE:BMY - News) lowered their earnings estimates for fiscal 2012. The pharma major reported lower-than-expected earnings and revenues in the final quarter of 2011.
Fourth Quarter Flash Back
Bristol-Myers’ fourth quarter 2011 earnings (excluding special items) of 53 cents per share fell short of the Zacks Consensus Estimate by 2 cents. Adjusted earnings in the final quarter of 2011 were above the year-ago earnings by 6 cents. Higher-than-expected expenses led to the earnings miss in the reported quarter.
Net sales in the quarter climbed 7% to $5.45 billion. Revenues were just shy of the Zacks Consensus Estimate of $5.48 billion, mainly due to lower sales of Plavix and Avapro/Avalide. (Read our detailed discussion on the earnings report at: Bristol-Myers Misses on All Fronts).
Agreement of Estimate Revisions
There is a significant negative bias in estimate revisions for fiscal 2012 and fiscal 2013 over the last 30 days. Over the last 30 days, 10 of the 13 analysts following the stock for 2012 have slashed their earnings estimates with only 2 upward movements. 2013 estimates have been cut by 6 analysts over the last 30 days with no upward movement(s).
We believe that the predominant downward bias is attributable to the impending loss of exclusivity of blockbuster blood thinner Plavix in the US. Plavix was co-developed by Bristol-Myers with Sanofi (NYSE:SNY - News).
The US genericization of the drug, whose 2011 global sales came in at approximately $7.1 billion with bulk of the revenues coming from the US market, will cost Bristol-Myers. The company expects to generate just $2.7 billion in sales from Plavix in 2012.
The drug is expected to lose US patent protection in May 2012. Consequently, earnings estimates for the second quarter of 2012 have been moving downwards over the last 30 days. Estimates for the quarter ending June 30, 2012 have been slashed by 3 analysts with no upward movements.
Magnitude of Estimate Revisions
Given the directional pressure from the negative revisions, earnings estimate for fiscal 2012 and fiscal 2013 have gone down by 6 cents each over the last 30 days. The current Zacks Consensus Estimates for fiscal 2012 and 2013 are $1.95 each.
Our Recommendation
We currently have a Neutral recommendation on Bristol-Myers. The stock carries a Zacks #3 Rank (Hold rating) in the short run. Even though we are concerned about the high generic risk on many of Bristol-Myers’ leading franchises, we believe that the company’s diversified business model coupled with its strong financial position will help in tough situations.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
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