Bristol-Myers Squibb Company (BMY) reported first-quarter 2010 earnings on April 29, 2010 that surpassed the Zacks Consensus Estimate by 4 cents. However, the company reduced its 2010 forecast prompted by costs associated with U.S. healthcare reform. Furthermore, patent expirations loom large on Bristol in the near future.
Even though the company has taken some measures like the Medarex acquisition to counter the loss of revenues, these have clearly not impressed the analysts covering the stock. A majority of the analysts have lowered their earnings estimates over the past 30 days.
Earnings Report Review
Bristol-Myers Squibb Company earned 56 cents per share (excluding special items) in the first quarter of fiscal 2010, which is above the Zacks Consensus Estimate by 4 cents. The company had earned 42 cents per share in the year-earlier quarter.
Net sales in the reported quarter climbed 11.3% year-over-year to $4.81 billion. While favorable currency exchange rates boosted revenues in the quarter by approximately 3%, the recently enacted healthcare reform negatively impacted net sales in the reported quarter by 1%.
(Read our full coverage on this earnings report here: Bristol-Myers Tops but Trims)
Agreement of Estimate Revisions
Looking at the estimates revision trends, it becomes clear that a majority of the analysts are in agreement about the weak fiscal 2010 outlook for Bristol-Myers. The following table shows that 12 analysts have lowered estimates for fiscal 2010 and only 2 have moved in the opposite direction over the last 30 days.
Also, for fiscal 2011, 14 analysts have lowered estimates, while one has moved in the opposite direction. The significant number of downward estimate revisions for 2010 and 2011 indicate a definite downward pressure on the performance of the stock in that time period.
There are a number of reasons for the negative sentiment regarding Bristol-Myers. Patent expirations, including that of its lead drug Plavix, will loom large on Bristol-Myers in the near future. Furthermore, Bristol-Myers has lost patent protection on products worth about $4 billion in sales over the past four years. Bristol-Myers has trimmed its earnings guidance to $2.10 per share – $2.20 per share in 2010 from $2.15 per share – $2.25 per share as the company estimates healthcare reform to impact earnings.
Magnitude of Estimate Revisions
Estimates for fiscal 2010 have declined by 4 cents over the last 30 days. Also, estimates for fiscal 2011 have dipped by 10 cents over the last 30 days.
Our Recommendation
Considering the estimate revision trends and the magnitude of revisions, we find that there is a clear negative outlook in the near term. However, we believe Bristol-Myers’ strong underlying business and mitigating initiatives undertaken by Bristol-Myers, coupled with its strong financial position, will help the company navigate through tough situations.
Bristol-Myers has taken various measures to counter the loss of revenues resulting from the patent expirations of its key drugs. The company intends to launch five other compounds — apixaban, belatacept, brivanib, dapagliflozin and ipilimumab — by 2012, subject to them being approved by regulatory authorities. The new launches are expected to drive growth in 2013 and beyond. We have a Neutral recommendation on the stock, which is supported by its Zacks #3 Rank.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
Read the full analyst report on “BMY”
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