After listening to the fourth-quarter 2021 earnings call held by Bristol-Myers Squibb (BMY), recorded on February 4th, 2022, I think that BMY is an old-economy pharmaceutical company that will continue to pay increasing dividends for the next decade and even longer. I am bullish on the stock.
My optimism stems from this company doing what it has done for the past several decades: using the excess free cash created by drugs that are currently on patent to fund research and development. This ensures that the number of drugs that are approved on the market and under patent continues to grow with each passing year.
On the earnings call, Giovanni Caforio, the CEO and Chairman of BMY, stated that the company will lose $12-14 billion per year in revenue from drugs coming off patent during the first half of this decade. However, BMY expects to replace those drugs with newly approved drugs that replace $10-13 billion of that lost revenue.
Caforio also expects the revenue from existing products to grow revenue another $8-10 billion between now and the end of 2025. He also expects to do this while maintaining an operating margin within the low 40s as a percentage of revenue.
When all of this is summed up, I think these estimations, coupled with how many times the management has estimated correctly, spell out a business that will continue to generate quite a lot of free cash over the next decade. I believe it deserves a place in any dividend investor’s portfolio who is looking for a relatively safe bet that the dividend will continue to grow at a fast, steady pace.
Recent Results and Dividend
BMY brought in revenues of $46.4 billion over the last 12 months and net income of $7 billion over the same period.
The company reported fourth-quarter earnings of $1.83 per share, beating analyst estimates of $1.80 per share by $0.03. It also reported $7.50 in earnings per share for 2021, beating analyst estimates of $7.31 by $0.19 during that period.
BMY currently pays a dividend of $0.54 per quarter. This is a dividend yield of 3.15%. BMY’s dividend has been very strong, with the company able to grow it for the past 15 consecutive years.
The company has a very strong balance sheet. It has a current ratio of 1.5, so it has enough current assets on hand to pay its bills for the next year and a half.
When I calculated the stock’s intrinsic value by modeling discounted cash flows, I pegged it at $66.85. I believe that BMY’s continued approvals each year will ensure that the stock maintains its current price (which is also approximately the same as where I calculated the intrinsic value).
Wall Street’s Take
Turning to Wall Street, BMY stock has a Strong Buy consensus rating, based on seven Buys and two Holds assigned in the past three months.
The average Bristol Myers price target of $70.14 implies 2% upside potential.
TipRanks.com shows 93% of the 46 bloggers that have blogged about BMY in the last three months are bullish, while only 69% of bloggers are bullish on the overall healthcare sector.
Conclusion
Based on the intrinsic value of this stock, BMY’s past performance, positive Wall Street sentiment, as well as management’s plan to continue to grow revenues and free cash flow, I am very bullish on this stock. I believe it will continue to produce huge amounts of free cash flow that will be returned to investors in the form of increasing dividends for years to come.
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