analysts: elisa gayle, raul guevara, applied portfolio ...bristol-myers squibb company bmy sector...

Applied Portfolio ManagementAnalysts: 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 3.101.75 (0.39) 3.47 5.18 3.12

Datasource: Capital IQ

Bristol-Myers Squibb Company Sector: Healthcare HOLDBMY

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

NOPATFree Cash Flow

Dividends

Free Cash Flow Margin

Earnings YieldDividend Yield

-20%

-10%

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50% BMY ^SPX

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2006 2007 2008 2009 2010 2011

Price/Earnings Price/Free Cash Flow

$0

$1,000

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$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

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2006 2007 2008 2009 2010 2011

Economic Value-Added Market Valued-Added

0%

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2006 2007 2008 2009 2010 2011

ROA ROE ROIC

20 28

BMY DateShare Price

PRVit Score(vs Market)

IndustryMedian

4-Apr-12 $33.70 97 57

9695

BMY 25th 50th 75th % Russell12.4% -5.6% 0.6% 4.5% 9319.4% -3.5% 0.7% 4.8% 94

89

BMY 25th 50th 75th % Russell2.8% -1.0% 0.7% 2.5% 773.2% -0.5% 0.5% 2.0% 844.3% -2.2% 0.5% 2.6% 83

3117

BMY 25th 50th 75th % Russell19% 36% 45% 57% 22.1% 2.1% 4.5% 12.0% 25EVA Margin Variability

Stock Price Volatility

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

EVA Margin (EVA/Sales)

BMY

20

40

60

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100

Intr

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c V

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sell

30

00

(P(9

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BMY PRVit Score Vs Market 97

Sell0-19

Underweight20-39

Hold40-59

Overweight60-79

Buy80-100

2.1% 2.1% 4.5% 12.0% 25

2

BMY 25th 50th 75th % Russell29% 6% 0% -10% 4113% 52% 22% 11% 9

14% 8% 26% 45% 350.3 0.7 1.8 3.4 11

2983

BMY 25th 50th 75th % Russell170% -3% 43% 139% 79286% -3% 35% 124% 88

4

BMY 25th 50th 75th % Russell3.9 5.8 7.8 10.6 813.8 15.4 20.3 28.3 17-11% -7% 24% 64% 22

No part of this report may be reproduced or distributed in any form except to authorized licensees of EVA Dimensions LLC Copyright 2010 All Rights Reserved

MVA MarginMVA Spread

V2 Wealth Multiples Valuation multiples to cash flow, earnings, EVA

EBITDAR MultipleNOPAT MultipleFuture Growth Reliance

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).

EVA Dimensions LLC l 15 Watersedge Court l Locust Valley, NY 11560 l Support Hot Line 1.888.500.3560 l [email protected]

V1 Wealth Ratios Valuation multiples to book capital (as adjusted)

g y

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

$0

$5,000

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$25,000

12/06 12/07 12/08 12/09 12/10 12/11

Sales vs. Capital

Sales Capital

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12/06 12/07 12/08 12/09 12/10 12/11

ROC vs. COC

ROC COC

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12/06 12/07 12/08 12/09 12/10 12/11

Market Value Added (MVA) vs. EVA

MVA EVA

0102030405060708090

100

12/06 12/07 12/08 12/09 12/10 12/11

PRVit Scores

Vs Market Vs Industry

0020406080100

Actual Valuation Vs. Russell 3000(V=29th Percentile)

BMY

0

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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

2006 2007 2008 2009 2010 2011 ASSETS 2006 2007 2008 2009 2010 2011

Total Revenue 16,208 15,617 17,715 18,808 19,484 21,244 Cash and Equivalents 2,018 1,801 7,976 7,683 5,033 5,776

Cost of Goods Sold 5,253 4,740 5,067 5,017 5,164 5,523 Short-Term Investments 1,995 424 289 831 2,268 2,957

Gross Profit 10,955 10,877 12,648 13,791 14,320 15,721 Total Cash & ST Invest. 4,013 2,225 8,265 8,514 7,301 8,733

SG&A Expense 5,769 5,025 5,212 4,872 4,628 5,131 Total Receivables 3,247 3,994 3,644 3,061 3,257 3,487

R&D Expense 2,936 2,998 3,164 3,300 3,424 3,604 Inventory 2,079 2,162 1,765 1,413 1,204 1,384

Dep. & Amort. 0 0 0 0 0 0 Prepaid Expenses 314 310 320 256 252 258

Other Oper. Exp. 13,958 12,763 13,443 13,189 13,216 14,258 Total Current Assets 10,302 10,102 14,697 13,958 13,273 15,318

Operating Income 2,250 2,854 4,272 5,619 6,268 6,986 Gross PPE 10,144 10,214 9,449 8,895 8,260 8,381

Interest Expense (498) (422) (310) (184) (145) (145) Accumulated Depr. (4,471) (4,564) (4,044) (3,840) (3,596) (3,860)

Other Non-Oper. Exp. 683 692 894 752 509 463 Net PPE 5,673 5,650 5,405 5,055 4,664 4,521

EBT ex-Unusuals 2,709 3,365 4,986 6,241 6,707 7,395 Long-Term Investments 0 419 209 1,545 2,915 3,044

Total Unusual Exp. (624) (842) (210) (639) (636) (414) Goodwill 4,827 4,998 4,827 5,218 5,233 5,586

Earnings Before Tax 2,085 2,523 4,776 5,602 6,071 6,981 Total Assets 25,575 25,926 29,486 31,008 31,076 32,970

Income Tax Expense 431 471 1,090 1,182 1,558 1,721 LIABILITIES AND EQUITYNet Income 1,585 2,165 5,247 10,612 3,102 3,709 Accounts Payable 1,239 1,442 1,535 1,711 1,983 2,603

Accrued Expenses 3,155 3,714 3,690 3,226 3,435 3,871

Diluted EPS 0.81 2.61 5.33 1.79 2.16 2.16 Short-Term Debt 187 1,891 154 193 117 115

Total Diluted Shares 1,963 1,999 1,978 1,727 1,717 1,717 Total Current Liab. 6,496 8,398 6,710 6,313 6,739 7,780

Dividends Per Share 1.12 1.24 1.25 1.29 1.33 1.33 Long-Term Debt 7,248 4,381 6,585 6,130 5,328 5,376

Pension Benefits 942 782 2,285 1,658 1,297 2,017

Effective Tax Rate 20.7% 22.8% 22.8% 25.7% 24.7% 24.7% Total Liabilities 15,584 15,364 17,278 16,223 15,438 17,103

Earnings Per Share 0.81 2.64 5.35 1.80 2.18 2.18 Preferred Equity 0 0 0 0 0 0

Total Common Shares 1,960 1,977 1,974 1,713 1,700 1,700 Common Stock & APIC 2,846 2,942 2,977 3,988 3,902 3,334

EBITDA 3,106 5,026 6,266 6,940 7,705 7,705 Retained Earnings 19,845 19,762 22,549 30,760 31,636 33,069

EBIT 2,250 4,272 5,619 6,268 6,986 6,986 Treasury Stock (10,927) (10,584) (10,566) (17,364) (17,454) (17,402)

EBITDAR 3,255 5,193 6,398 7,085 7,841 7,841 Total Common Equity 9,991 10,562 12,241 14,843 15,713 15,956

Free Cash Flow/Share 0.71 1.72 1.95 2.52 2.75 2.75 Total Equity 9,991 10,562 12,208 14,785 15,638 15,867

Year-end Stock Price $26.42 $22.61 $17.74 $24.72 $25.39 $32.61 Total Liab. and Equity 25,575 25,926 29,486 31,008 31,076 32,970

Historical Income Statements Historical Balance Sheets

$0

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2006 2007 2008 2009 2010 2011

Total Revenue Net Income

$0.00

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2006 2007 2008 2009 2010 2011

Earnings Per Share Dividends Per Share

$0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000 $8,000 $9,000

2006 2007 2008 2009 2010 2011

EBITDA EBIT

BMY Performance Analysis. Datasource: CapitalIQ Historical Performance, Page 1 of 4 Analysts: Elisa Gayle, Raul Guevara, Justin Pippitt and Jonathan Ramirez

Margins 2006 2007 2008 2009 2010 2011 Relative Valuation 2006 2007 2008 2009 2010 2011

Gross Profit Margin 67.6% 69.6% 71.4% 73.3% 73.5% 74.0% Price/Earnings 32.7 8.6 3.3 13.7 11.7 15.0

Operating Profit Margin 13.9% 18.3% 24.1% 29.9% 32.2% 32.9% Price/Book 2.0 1.7 1.2 1.4 1.4 1.7

Net Profit Margin 9.8% 13.9% 29.6% 56.4% 15.9% 17.5% Price/Free Cash Flow 37.0 13.1 9.1 9.8 9.2 11.9

Free Cash Flow Margin 8.6% 21.8% 21.8% 22.9% 24.0% 22.0% Earnings Yield 3.1% 11.7% 30.1% 7.3% 8.6% 6.7%

Dividend Yield 4.2% 5.5% 7.0% 5.2% 5.2% 4.1%

Liquidity and Debt 2006 2007 2008 2009 2010 2011 Profitability 2006 2007 2008 2009 2010 2011

Current Ratio 1.59 1.20 2.19 2.21 1.97 1.97 Net Profit Margin 9.8% 13.9% 29.6% 56.4% 15.9% 17.5%

Quick Ratio 1.27 0.95 1.93 1.99 1.79 1.79 Total Asset Turnover 0.63 0.60 0.60 0.61 0.63 0.64

Days Sales Outstanding 73.12 93.35 75.08 59.40 61.01 59.91 Equity Multiplier 2.56 2.45 2.42 2.10 1.99 2.08

Inventory Turnover 7.80 7.22 10.04 13.31 16.18 15.35 Return on Assets 6.2% 8.4% 17.8% 34.2% 10.0% 11.2%

Long-Term Debt to Equity 72.5% 41.5% 53.9% 41.5% 34.1% 33.9% Return on Equity 15.9% 20.5% 43.0% 71.8% 19.8% 23.4%

Total Debt to Assets 29.1% 24.2% 22.9% 20.4% 17.5% 16.7% Return on Invested Capital 20.7% 39.0% 32.0% 38.0% 60.2% 60.5%

Times Interest Earned 4.52 6.76 13.78 30.54 43.23 48.18

0 2 4 6 8 10 12 14 16 18

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Days Sales Outstanding Inventory Turnover

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Current Ratio Quick Ratio

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2006 2007 2008 2009 2010 2011

Gross Profit Margin Operating Profit Margin

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Price/Earnings Price/Free Cash Flow

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2006 2007 2008 2009 2010 2011

Earnings Yield Dividend Yield

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2006 2007 2008 2009 2010 2011

Total Debt to Assets Long-Term Debt to Equity

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2006 2007 2008 2009 2010 2011

ROA ROE ROIC

0.0

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0.58

0.59

0.60

0.61

0.62

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0.65

2006 2007 2008 2009 2010 2011

Total Asset Turnover Equity Multiplier

0%

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2006 2007 2008 2009 2010 2011

Net Profit Margin Free Cash Flow Margin


Capital, NOPAT & FCF 2006 2007 2008 2009 2010 2011

Net Oper. Working Capital 2,950 2,801 8,160 7,220 4,076 4,173

Net Fixed Assets 5,673 5,650 5,405 5,055 4,664 4,521

Total Invested Capital 8,623 8,451 13,565 12,275 8,740 8,694

Net Oper. Profit After Tax 1,785 3,297 4,337 4,659 5,264 5,264

Free Cash Flow N/A 3,469 -777 5,949 8,799 5,310

Compared With: NOPAT Per Share 0.91 1.67 2.20 2.72 3.10 3.10

Pfizer Inc. Free Cash Flow Per Share N/A 1.75 -0.39 3.47 5.18 3.12

Merck & Co. Inc. Return on Invested Capital 20.7% 39.0% 32.0% 38.0% 60.2% 60.5%

S&P 500 Index

Cost of Capital 2011 Weight % Cost Wgt Cost Value Creation 2006 2007 2008 2009 2010 2011

Equity Capitalization 55,100 90.9% 6.0% 5.4% Economic Value-Added 1,291 2,813 3,560 3,957 4,764 4,766

Total Debt 5,491 9.1% 4.5% 0.3% Market Valued-Added 41,773 41,908 33,785 35,177 29,612 39,144

Preferred Stock 0 0.0% 0.0% 0.0% PV of Future FCFs 128,835 132,738 141,112 143,238 142,636 145,489

Value of All Securities 60,591 100.0% Value of Non-Oper. Assets 4,013 2,225 8,265 8,514 7,301 8,733

Effective Tax Rate 24.7% Long-Term Growth Rate: Total Intrinsic Firm Value 132,848 134,963 149,377 151,752 149,937 154,222

Risk-Free Rate 2.04% 2.0% Intrinsic Value of Equity 125,413 128,691 142,638 145,429 144,492 148,731

Beta 0.46 Alternative Beta: Per Share Intrinsic Value $63.89 $64.38 $72.11 $84.21 $84.15 $86.62

Market Risk Premium 7.0% 0.56 Year-End Stock Price $26.42 $22.61 $17.74 $24.72 $25.39 $32.61

CAPM Cost of Equity 6.0% Over (Under) Valuation/Sh ($37.47) ($41.77) ($54.37) ($59.49) ($58.76) ($54.01)

Weighted Average Cost of Capital: 5.7% % Over (Under) Valued -141.8% -184.7% -306.5% -240.7% -231.4% -165.6%

15.0% 33.3% 26.2% 32.2% 54.5% 54.8%

$0

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2006 2007 2008 2009 2010 2011

Net Fixed Assets Total Invested Capital

-$2,000

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$10,000

2007 2008 2009 2010 2011

Net Oper. Profit After Tax Free Cash Flow

$0

$20

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2006 2007 2008 2009 2010 2011

Year-End Stock Price Per Share Intrinsic Value

0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000

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2006 2007 2008 2009 2010 2011

Economic Value-Added Market Valued-Added

-350%

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0%

($70)

($60)

($50)

($40)

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($20)

($10)

$0

2006 2007 2008 2009 2010 2011

Over (Under) Valuation/Sh % Over (Under) Valued

-10%

0%

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50% BMY PFE MRK

-20%

-10%

0%

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50% BMY ^SPX


Revenues, Profits and Dividends 20.0% Liquidity and Debt 10.0%

Total Revenue 1 Current Ratio 1

EBITDA 1 Quick Ratio 1

EPS 1 Days Sales Outstanding 1

DPS 1 Inventory Turnover 1

Gross, Operating and Net Margins 15.0% Total Debt/Assets 1

Gross Profit Margin 1 Long-Term Debt/Equity 1

Operating Profit Margin 1 NOPAT, Total Invested Capital, FCF 15.0%

Net Profit Margin 0 NOPAT 1

Free Cash Flow Margin 1 Total Invested Capital 0

Relative Valuation 15.0% Free Cash Flow 1

Price/Earnings 0 Value Creation 15.0%

Price/Free Cash Flow 0 Economic Value-Added 1

Earnings Yield 0 Market Value-Added 1

Dividend Yield 1 Intrinsic Value 1

Profitability 10.0%

ROA 1 Score (max = 100%) 80.0%

ROE 1

ROIC 1

Weights 100.0%

Historical Performance Diffusion Index


analysts: elisa gayle, raul guevara, applied portfolio ...bristol-myers squibb company bmy sector...

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