Piper Jaffray Upgrades Bristol-Myers Squibb, Sees Valuation As Fair
- With the meaningful decline in the share price since Bristol-Myers Squibb Co (NYSE: BMY) announced its Q2 earnings, the stock is now trading close to its fair value.
- Piper Jaffray’s Richard J. Purkiss has upgraded Bristol-Myers Squibb from Underweight to Neutral, while maintaining the price target at $61.
- Purkiss believes that following the recent pullback, the company’s strong R&D execution, especially in the immune-oncology arena, is “more rationally” priced into the stock.
Although Bristol-Myers Squibb gained the first-mover advantage for Opdivo in the treatment of lung cancer, analyst Richard Purkiss expects Keytruda, developed by Merck & Co., Inc. (NYSE: MRK), and atezolizumab, developed by Roche Holding Ltd. (ADR) (OTC: RHHBY), to add competition in the near term.
In addition, while the Street consensus implies an earnings CAGR of more than 22 percent during 2015-2019, Purkiss expects the CAGR to come in lower at over 19 percent, largely driven by slower operating margin expansion due to the robust growth of the low-margin product, Eliquis, and the impact of loss of exclusivity (LoE)for several of Bristol-Myers Squibb’s high margin products.
Purkiss explained that the Pfizer Inc. (NYSE: PFE) pay-away, which accounts for half of Eliquis’ total revenue, is booked through COGS, and is therefore likely to put downward pressure on Bristol-Myer Squibb’s gross margin.
“Additionally, the LoE impact from several high margin drugs will be felt across this period: Abilify in 1Q2016 and the HIV brands in 2018,” the Piper Jaffray report added.
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|Oct 2016||Credit Suisse||Maintains||Neutral|
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