Applied Portfolio Management Analysts: Elisa Gayle, Raul Guevara, Justin Pippitt and Jonathan Ramirez Report Date: 3/27/2012 Market Cap (mm) $55,100 Annual Dividend $1.33 Beta (S&P 500 Index) 0.36 Return on Capital 60.5% Dividend Yield 4.1% Annualized Alpha 8.7% Compared With: EPS (ttm) $2.18 Price/Earnings (ttm) 15.0 Institutional Ownership 11.6% Pfizer Inc. Current Price $32.61 Economic Value-Added (ttm) $4,766 Short Interest (% of Shares) 1.6% Merck & Co. Inc. 12-mo. Target Price $34.00 Free Cash Flow Margin 22.0% Days to Cover Short 2.4 and the S&P 500 Index Business Description Total Revenue 6.2% Free Cash Flow -289.7% EBIT 7.5% Total Invested Capital -13.8% NOPAT 6.7% Total Assets 3.8% Earnings Per Share -25.9% Economic Value-Added 10.2% Dividends Per Share 2.1% Market Value-Added 5.0% 2007 2008 2009 2010 2011 18.3% 24.1% 29.9% 32.2% 32.9% 21.8% 21.8% 22.9% 24.0% 22.0% 11.7% 30.1% 7.3% 8.6% 6.7% 5.5% 7.0% 5.2% 5.2% 4.1% 2007 2008 2009 2010 2011 2.64 5.35 1.80 2.18 2.18 1.24 1.25 1.29 1.33 1.33 1.67 2.20 2.72 3.10 3.10 1.75 (0.39) 3.47 5.18 3.12 Datasource: Capital IQ Bristol-Myers Squibb Company Sector: Healthcare HOLD BMY Bristol-Myers Squibb Company, a biopharmaceutical company, engages in the discovery, development, licensing, manufacturing, marketing, distribution, and sale of biopharmaceutical products that help patients prevail over serious diseases worldwide. Its principal products include PLAVIX for protection against fatal or non-fatal heart attack or stroke; AVAPRO/AVALIDE for the treatment of hypertension and diabetic nephropathy; ELIQUIS to prevent and treat venous thromboembolic disorders and stroke prevention in atrial fibrillation; ABILIFY, an agent for adult patients with schizophrenia, bipolar mania disorder, and depressive disorder; and REYATAZ for the treatment of HIV. The company’s principal Investment Thesis ANNUALIZED 3-YEAR CAGR Total Revenue, EBIT, NOPAT, Dividends Per Share, Total Assets, EVA, and MVA all have acceptable positive 3-year CAGRs. The large decrease in FCF stems mainly from high investment in M&A, which is central to BMY's long-term strategy. The S&P 500 ttm return is almost 30% less than BMY, which shows strong, consistent returns over the same period. Although DPS growth is low, BMY has a long-term commitment to paying and growing dividends. BMY’s ROIC has increased 50% in the last 5 years, driven by strong NOPAT growth. BMY has steadily increased its EVA, while maintaining positive MVA. This is in line with a high ROIC, low beta, and a low WACC. BMY has been consistently undervalued since at least 2006, by as much as 220% based on a DCF model. Even though the current price trend is correcting the undervaluation, as of year- end 2011 BMY remained significantly undervalued. Margins and Yields Operating Margin Per Share Metrics Earnings NOPAT Free Cash Flow Dividends Free Cash Flow Margin Earnings Yield Dividend Yield -20% -10% 0% 10% 20% 30% 40% 50% BMY ^SPX -10% 0% 10% 20% 30% 40% 50% BMY PFE MRK 0 5 10 15 20 25 30 35 40 2006 2007 2008 2009 2010 2011 Price/Earnings Price/Free Cash Flow $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 2006 2007 2008 2009 2010 2011 EBIT Net Operating Profit After Tax $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 2006 2007 2008 2009 2010 2011 Economic Value-Added Market Valued-Added 0% 10% 20% 30% 40% 50% 60% 70% 80% 2006 2007 2008 2009 2010 2011 ROA ROE ROIC
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Applied Portfolio ManagementAnalysts: Elisa Gayle, Raul Guevara, Justin Pippitt and Jonathan Ramirez
P2 Trend The growth rate in the firm's economic profit (its EVA)
EVA Momentum (vs Cap)3 Year Trend (∆EVA/Cap)Last Quarter (∆EVA/Cap)
Risk Score (R) Lower is betterR1 Volatility Variability in stock price and the EVA profit margin
EVA Spread (EVA/Capital)
PRVit® -- the Performance Risk Valuation investment technologyfrom EVA Dimensions LLC
PRVit® is powered by EVA® and EVA Momentum®,registered marks of EVA Dimensions LLC
BRISTOL-MYERS SQUIBB CO Pharmaceuticals PRVit Score(vs Industry)
Bristol-Myers Squibb Company, a biopharmaceutical company, engages in the discovery, development, licensing, manufacturing, marketing, distribution, and sale of biopharmaceutical products that help patients prevail over serious diseases worldwide. Its principal products include PLAVIX for protection against fatal or non-fatal heart attack or stroke; AVAPRO/AVALIDE for the treatment of hypertension and diabetic nephropathy; ELIQUIS to prevent and treat venous thromboembolic disorders and stroke prevention in atrial fibrillation; ABILIFY, an agent for adult patients with schizophrenia, bipolar mania disorder, and depressive disorder; and REYATAZ for the treatment of HIV. The company's principal products also comprise SUSTIVA for the treatment of HIV; BARACLUDE, an inhibitor of hepatitis B virus; ERBITUX to target and block the epidermal growth factor receptor; SPRYCEL for treatment of chronic myeloid leukemia in adults; YERVOY to treat metastatic melanoma; ORENCIA to treat moderate to severe rheumatoid arthritis in adults; NULOJIX to prevent solid organ transplant rejection; and ONGLYZA for the treatment of type 2 diabetes. Its products under Phase III clinical trials include Brivanib to block the VEGF and the FGF receptors; Dapagliflozin to treat diabetes; Necitumumab and Elotuzumab for anticancer treatment; and Daclatasvir for the treatment of hepatitis C virus. The company sells its products to wholesalers, as well as directly to distributors, retailers, hospitals, clinics, government agencies, and pharmacies. It has strategic alliances with Pfizer, Inc.; AstraZeneca PLC; Otsuka Pharmaceutical Co., Ltd.; Eli Lilly and Company; and Gilead Sciences, Inc. The company was formerly known as Bristol-Myers Company and changed its name to Bristol-Myers Squibb Company in 1989. Bristol-Myers Squibb Company was founded in 1887 and is headquartered in New York, New York.
93BMY's outstanding performance (96th percentile vs. Russell 3000 companies), coupled with its low risk (31st percentile), indicates a very high intrinsic valuation is warranted (96th percentile), which compared to its actual market valuation (29th percentile at its $33.7 share price) makes for a PRVit score of 97th percentile vs. the market.
BMY's PRVit score is at the 93rd percentile of all firms in its industry, which leads to a recommendation to Buy. BMY is more attractively priced in relation to its true value than all but a few of the stocks in its industry.
Performance Score (P) Higher is betterP1 Profitability Financial strength in generating a return on capital over the full cost
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MVA MarginMVA Spread
V2 Wealth Multiples Valuation multiples to cash flow, earnings, EVA
The PRVit Matrix: depicts a company’s PRVit score by plotting its “intrinsic” value score – what PRVit rates the firm is truly worth based on its risk-adjusted performance, i.e., its comparative P-R score – against its actual valuation score – which reflects the company’s current trading multiples. Companies rated “Hold” plot along the diagonal, which is where the firms’ actual valuation multiples align with their intrinsic values. “Buys” plot in the upper right green zone, which is where PRVit rates the firms as worth more than their current share values, and “Sells” appear in the lower left red zone, where the firms’ P-R scores fall short of their V scores. The top grid rates the firms against the entire market, and the lower one ranks them against industry peers (which is the basis for the official “PRVit” score).
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V1 Wealth Ratios Valuation multiples to book capital (as adjusted)
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R2 Vulnerability Leveraged, negative cash flow firms are suspect
Free Cash Flow RateOp Cash Gen Return
Total Debt/Total CapitalTotal Debt/EBITDAR
Valuation Score (V) Lower is better
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Sales vs. Capital
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ROC vs. COC
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Market Value Added (MVA) vs. EVA
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PRVit Scores
Vs Market Vs Industry
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Actual Valuation Vs. Russell 3000(V=29th Percentile)
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Actual Valuation Vs. Industry(V=34th Percentile)
BMY PRVit Score Vs Industry 93
Bristol-Myers Squibb Company BMY Sector Healthcare Stock Price $32.64 Report Date 3/27/2012