Is Bristol Myers Squibb the Best Bargain in Big Pharma?
Key Points
Bristol Myers Squibb's valuation metrics show the stock is a bona fide bargain.
However, valuation metrics can be misleading because most of them don't factor in growth.
The stock may not be the biggest bargain in Big Pharma, but it could still be attractive to income and value investors.
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Every American knows that healthcare isn't cheap. Healthcare costs continue to rise. Some healthcare stocks are cheap, though, including the stocks of some of the world's biggest drugmakers.
Bristol Myers Squibb (BMS) (NYSE: BMY) is one of them. To be sure, BMS isn't the biggest pharma stock. Its market cap of around $120 billion ranks it just outside the top 10 largest drugmakers. But is BMS the best bargain in big pharma?
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Some persuasive numbers
A quick look at BMS's valuation metrics might convince you that this stock is a bona fide bargain. For example, the average price-to-sales ratio for pharmaceutical companies is around 4.4. BMS's shares trade at only 2.5 times sales.
The company's bottom line appears to scream "bargain", too. BMS's forward price-to-earnings ratio is a low 9.4. The healthcare sector's average forward earnings multiple is 17.3.
Some investors prefer to use enterprise value (EV) to value companies because it accounts for debt. BMS's EV/EBITDA multiple of 10.3 also looks attractive compared to most other drugmakers. Lilly is super-expensive with its EV/EBITDA of around 27. AbbVie (NYSE: ABBV), AstraZeneca (NYSE: AZN), and Johnson & Johnson (NYSE: JNJ) also sport much higher EV-based multiples than BMS.
What about a deeper dive into BMS's valuation? At least one discounted cash flow model estimates that the pharma stock is significantly undervalued, with an upside of roughly 40%.
Valuation metrics can be misleading
BMS looks like a value stock from nearly every angle. However, valuation metrics can be misleading. Specifically, most of them don't account for a company's growth prospects over the next several years. Unfortunately, BMS's growth will almost certainly slow drastically.
The company faces a daunting patent cliff. U.S. patents for blood thinner Eliquis and cancer immunotherapy Opdivo expire in 2028. Last year, Eliquis was BMS's top-selling drug, while Opdivo ranked No. 2. Their combined sales make up nearly half of the company's total revenue.
BMS won't have to wait until its top two blockbusters lose exclusivity to encounter problems. Cancer drugs Abraxane, Pomalyst, Revlimid, and Sprycel have already lost patent exclusivity. The company expects revenue to decrease slightly this year compared to 2025.
Stocks are usually cheap for a reason. BMS is no exception. Investors have given the stock a low valuation because they know the growth prospects aren't appealing over the rest of the decade.
Granted, BMS has a promising growth portfolio that includes cancer drug Opdualag, autoimmune disease drug Sotyktu, and heart disease drug Camzyos. Combined sales from all of the drugs in the company's growth portfolio rose 17% year over year in 2025. However, BMS's legacy drugs still comprise roughly 45% of revenue.
The biggest bargain in big pharma?
Probably the best argument against Bristol Myers Squibb being the biggest bargain in big pharma is that several other stocks have even lower valuation metrics. Pfizer (NYSE: PFE), for example, boasts a lower forward P/E multiple of 9.1. Factoring in growth projections over the next five years, AbbVie looks more attractively valued.
However, BMS doesn't have to be the biggest bargain in big pharma to still be a good pick for some investors. Many income investors will love the company's forward dividend yield of 4.3% and its record of increasing dividends for 17 consecutive years. A lack of growth won't be as concerning to most income investors. As long as BMS can keep the dividends flowing, they'll be happy.
Some value investors may still find BMS appealing, especially those with long investment horizons. The company's growth portfolio should steadily generate a larger share of its revenue. BMS CEO Chris Boerner believes that his company has "the potential to achieve industry-leading, sustainable growth into the 2030s and beyond." If you're willing to wait, BMS could deliver solid total returns.
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Keith Speights has positions in AbbVie, Bristol Myers Squibb, and Pfizer. The Motley Fool has positions in and recommends AbbVie, AstraZeneca Plc, Bristol Myers Squibb, and Pfizer. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
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