Earnings Preview: Bristol-Myers - Analyst Blog

Bristol-Myers Squibb Company (BMY) is all set to announce its fourth quarter and full year 2010 results on January 27, 2011 before the opening bell. The Zacks Consensus Estimate for the fourth quarter is 48 cents, representing a year-over-year increase of 2.1%. The Zacks Consensus Estimate for 2010 is $ 2.16, up 17.4%. Bristol Myers has surpassed earnings estimates consistently in the last four quarters with a trailing four-quarter average of 7.55%.

Third quarter 2010 recap

Bristol-Myers Squibb Company's third quarter 2010 earnings (excluding special items) of 59 cents per share surpassed the Zacks Consensus Estimate by $0.06. The company had earned $0.47 per share in the year-ago quarter.

On a reported basis (including special items), Bristol-Myers' earnings in the reported quarter climbed 22% to 55 cents per share. Even though Bristol-Myers' lead product Plavix and therapies indicated for HIV and hepatitis performed well in the quarter, the better than expected earnings were mainly driven by cost controls and lower taxes.

Net sales in the reported quarter came in flat at $4.8 billion. Revenues were short of the Zacks Consensus revenue Estimate of $4.9 billion mainly because of lower sales of Abilify, approved for the treatment of schizophrenia and depression, cancer drug Erbitux and hypertension treatment Avapro. The healthcare reform enacted in 2010 negatively impacted net sales in the reported quarter by 1.6%.

US net sales in the quarter climbed 4% to $3.1 billion. However, international sales slipped 6% to $1.7 billion mainly because of a 3% negative foreign exchange (Fx) impact. Global net sales of Plavix climbed 7% to $1.66 billion in the quarter.

Worldwide sales of HIV treatment drugs Sustiva and Reyataz jumped to $342 million (up 9%) and $375 million (up 4%), respectively. Sales of Baraclude (entecavir), one of the top prescribed therapies for hepatitis B virus (HBV), came in at $228 million, up 19%. Sales of the rheumatoid arthritis drug, Orencia, stood at $184 million, up 14%, while the leukemia drug, Sprycel, registered sales of $144 million, up 35%.

Agreement of Estimate Revisions

Over the past thirty days, 3 analysts covering Bristol-Myers have upped their earnings estimates for the final quarter of 2010 with an equal number of analysts moving in the opposite direction. The annual estimates for 2010 too have been increased by 3 analysts with 2 analysts trimming estimates. Majority of the analysts have left their earnings estimates unchanged. We believe the lack of significant directional pressure on the stock highlights the efforts undertaken by the company to counter the loss of revenues that will arise once Bristol-Myers' key drugs including Plavix lose their market exclusivity.

Magnitude of Estimate Revisions

Estimates for the fourth quarter of 2010 have remained static at 48 cents over the last 30 days due to a lack of significant estimate revisions by the analysts following the stock. Estimates for 2010 too are static at $2.16 over a similar time period. The lack of significant estimate revisions has caused the magnitude to remain static.

Our Take & Recommendation

Currently, we have a 'Neutral' stance on Bristol-Myers which is supported by the Zacks #3 Rank (short-term ‘Hold' rating) carried by the company. Our biggest concern regarding the company is its high exposure to generic risk on many of its leading franchises.

However, the company has already taken measures like the extension of the Abilify agreement with Otsuka, the acquisition of ZymoGenetics and Medarex to combat the threat of generics hanging over it. Moreover, the company intends to launch five compounds -- apixaban, belatacept, brivanib, dapagliflozin and ipilimumab -- by 2012.

However, given the present scenario, we believe the ipilimumab may hit the market in 2011 itself. The new launches are expected to drive growth in 2013 and beyond. Consequently, the stable long-term outlook prompts us to have a 'Neutral' stance on the stock in the long-run.