Bristol Myers Squibb Now Trades at Only 9.4X Forward Earnings -- Is This Value Stock a Buy?

After several years of poor performance, Bristol Myers Squibb (NYSE: BMY) is bouncing back. The company's shares are up 42% over the trailing 12-month period, while the S&P 500 has climbed just 15%. Could there be more upside ahead for the pharmaceutical giant? There are some reasons to think so. Bristol Myers is trading at just 9.4x forward earnings, versus an average of 18.5x for healthcare stocks.

Is Bristol Myers a great value play to buy now?

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Not out of the woods just yet

Bristol Myers' troubles in recent years stem in part from patent cliffs. The company has lost patent exclusivity for such products as Revlimid, a cancer medicine that used to be its top-selling drug.

The drugmaker will experience more patent cliffs through the end of the decade. Notably, Bristol Myers' Opdivo, a cancer drug, and Eliquis, an anticoagulant it shares the right to with Pfizer (NYSE: PFE), will both run out of patent exclusivity in the U.S. How could this impact the company's financial results?

Consider that in the second quarter, Bristol Myers' revenue increased by 6% year over year to about $13 billion. The company's non-GAAP earnings per share jumped 40% year over year to $2.04. Eliquis' sales contributed $4.5 billion, up 22% year over year. So, Eliquis alone accounted for almost 35% of Bristol Myers' top line. Opdivo contributed another $2.5 billion, although its sales dropped by 3% year over year.

So, together these two products accounted for more than half of Bristol Myers' total revenue. That may be one reason the company's forward price-to-earnings is low: The market expects revenue and earnings growth to slow -- and perhaps reverse -- once Bristol Myers starts facing generic and biosimilar competition for Eliquis and Opdivo.

Can Bristol Myers overcome patent cliffs?

Bristol Myers could experience a decline in sales by the end of the decade. The question is whether the drugmaker will emerge from it in one piece and continue posting strong financial results long after. Thankfully, Bristol Myers has worked hard to launch new drugs that will help it through these challenging times. The company's growth portfolio features several medicines that have been on the market for less than a decade. Some of them are posting strong revenue growth. Consider Reblozyl, a medication for certain forms of anemia.

During the second quarter, Reblozyl's sales jumped 29% year over year to $735 million.

Reblozyl should remain a meaningful growth driver for the foreseeable future, but perhaps the most important relatively new approval in Bristol Myers' portfolio is Opdivo Qvantig, a subcutaneous version of the highly successful cancer medicine -- the original formulation is administered via intravenous infusion.

Opdivo Qvantig is much faster and easier to administer. Its convenience could help it retain many of the patients from its original formulation after it loses patent exclusivity. In fact, as Bristol Myers pointed out, second-quarter Opdivo sales declined partly because some patients switched to Opdivo Qvantig.

That's great news for the company's medium-term prospects. Still, Bristol Myers will need to launch brand-new products to fully address its upcoming patent cliffs. The pharmaceutical company is also capable of doing that. Bristol Myers has several promising pipeline candidates that could make significant progress over the next few years.

For instance, Bristol Myers is developing pumitamig, an investigational bispecific antibody (a newer class of medicines showing tremendous promise, particularly in oncology). Bristol Myers is working on this program with BioNTech (NASDAQ: BNTX). Pumitamig is undergoing clinical trials across several potential indications and could potentially become a pipeline-in-a-drug.

Bristol Myers' pipeline also features milvexian, an investigational anticoagulant that could become the heir to Eliquis, provided ongoing clinical trials go well. These are just some of the company's most promising candidates. Its deep pipeline features many more.

What's your investing timeline?

Bristol Myers may not perform well over the next couple of years as its patent cliffs approach. But the company's approved portfolio and pipeline look strong enough to help it weather the storm and recover. In addition, Bristol Myers is a solid dividend stock. The company offers a forward yield of 4%, compared to an average of 1.1% for the S&P 500, and has increased its payouts by 65.8% over the past decade.

These are all good reasons Bristol Myers' shares are attractive at current levels, at least for investors intending to hold onto the stock for at least five years.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends BioNTech Se, Bristol Myers Squibb, and Pfizer. The Motley Fool has a disclosure policy.