Bristol-Myers Squibb ($BMY), a pharmaceutical giant, is trading at $49.73, far below its intrinsic value of $146.45, as calculated using the Buffett and McGrew Valuation Methods. This steep discount suggests BMY could be a “Screaming Buy,” but why is the stock so cheap, and is it truly a bargain? Let’s dive into the numbers and market dynamics.
Using five years of free cash flow (FCF) data (2021: $15,234M; 2022: $11,948M; 2023: $12,651M; 2024: $13,942M; TTM Q1 2025: $13,086M), I applied the Buffett and McGrew methods. Both assume a conservative 5% growth rate due to a negative 5-year FCF CAGR (-2.23%) and a 3-year CAGR of 8%. With a 2.5% perpetual growth rate, an 8% discount rate, and 2,029M shares outstanding, both methods yield an intrinsic value of $146.45 per share, with a 25% margin of safety price of $109.84. Since $49.73 is well below $109.84, BMY earns a “Screaming Buy” status, indicating the market significantly undervalues it.
Why the discount? First, patent expirations loom large. Blockbusters like Eliquis ($3.57B in Q1 2025) and Opdivo face generics by 2028, while Revlimid’s sales plummeted from $13B (2021) to $5.8B (2024). This contributed to a weak 2025 revenue forecast (~$45.5B, down from $48.3B in 2024) and EPS guidance ($6.55–$6.85, below $6.92 estimates), triggering a ~3% stock drop. Second, high debt ($51.2B in Q1 2025) from acquisitions like Celgene ($74B) and Karuna ($14B) raises concerns, especially with Cobenfy’s recent trial setback. Third, macro uncertainties, like potential U.S.-China tariffs and Trump-era regulatory changes (e.g., FDA restructuring), spook investors. Finally, pipeline risks, including discontinued programs, overshadow successes like Opdivo Qvantig and Sotyktu.
Despite these headwinds, BMY’s fundamentals shine. Its Q1 2025 annualized return on tangible equity (ROTE) was a stellar 58.4%, driven by $2,462M net income and $16,862M average tangible equity. This rebound from Q1 2024’s $11,908M loss (due to Karuna charges) highlights profitability, amplified by low tangible equity from $44.5B in intangibles. BMY’s growth portfolio grew 16% in Q1 2025, with new drugs like Reblozyl (41% growth in 2023) and Cobenfy projected at $5.7B by 2030. Cost-cutting ($3.5B by 2027) and robust FCF ($13.9B in 2024) support dividends ($1.2B quarterly) and debt reduction. Analysts’ price targets ($58–$63.52) and a low forward P/E (~7 vs. peers’ ~13) suggest upside.
The market’s pessimism seems overdone. BMY’s strategic pivot—10 new drugs since 2019, $25B projected from growth products by 2030—positions it to offset patent cliffs. Tariff risks are speculative, and global operations mitigate them. Cobenfy’s setback is a blip compared to pipeline depth (e.g., milvexian at $3.9B by 2030). The stock’s 34% drop from its 2022 peak ($72.96) near its 52-week low ($39.35) screams opportunity.
In summary, BMY’s $49.73 price reflects short-term fears, not its long-term value. With a $146.45 intrinsic value, strong FCF, and a recovering ROTE, it’s a compelling buy for patient investors. Monitor pipeline progress and policy risks, but the numbers suggest a bargain.
Disclaimer: This post is for informational purposes only and not financial advice. Investing involves risks, and past performance doesn’t guarantee future results. Conduct your own research or consult a financial advisor before investing. Data sourced from BMY financials and recent news (April–June 2025).
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