EFTA01087643.pdf

J.P. Morgan North America Equity Research 30 September 2015 ma) Overweight FOCUS Bristol-Myers Squibb Company BMY, BMY US ust Price: $58.95 Model Update A Price Target: $78.00 Previous: $75.00 We are updating our model and establishing a 2016 price target of $78. Pharmaceuticals - Major 8. Please see changes below. Specialty Chris Schott, CFA AC Bloomberg JPMA SCHOTT <GO> • Aditl Singhania, PhD Wendy L Lin Dana Flanders, CFA J.P. Morgan Securities LLC Price Performance Ti cs ss es Neu ifie.0 anif &PIS MY *hem Pelee Is) SKIP inflamed) YTD 1m 3m 12m Abe I -0.1% -0.9% -10.6% 14.0% Rel I 8.4% 3.6% -2.2% 18.7% Bristol-Myers Squibb Company (BMY;BMY US) FYE Dec 2013A 2014A 2015E 2018E 2017E Company Data EPS (5) Price ($) 58.95 01 (Mar) 0.41 0.46 0.71A Date Of Price 29 Sep 15 02 (Jun) 0.44 0.48 0.53A 52-week Range (5) 70.54.47.55 03 (Sep) 0.46 0.45 0.38 Market Cap ($ mn) 98,623.35 04 (Dec) 0.51 0.46 0.21 Fiscal Year End Dee FY 1.82 1.85 1.84 2.25 3.09 Shares 0/S (mn) 1,673 Bloomberg EPS FY (5) 1.75 1.80 1.84 2.25 2.97 Price Target ($) 78.00 Source: Company data. Bloomberg. J.P. Morgan estimates. Price Target End Date 31-Dec-16 See page 4 for analyst certification and important disclosures. J.P. Morgan does and seeks to do business with companies covered in its research reports. Asa result, investors should be aware that the firrn may have a conflict of interest that could affect the objectivity of this report Investors should consider this report as only a single factor in making their investment decision. www.jpmorganmarkets.com t is being provided for the exclusive use of LAUREN ZAKARIAN-COGSWELL at JPMorgan Chase & Co. and clients of J.P. Morgan. EFTA01087643  Chris Schott. CFA North America Equity Research 30 September 2015 J.P.Morgan Investment Thesis, Valuation and Risks Bristol-Myers Squibb Company (Overweight; Price Target: $78.00) Investment Thesis We rate Bristol Overweight ahead of a number of potential important catalysts over the next 12-18 months for the company's immunotherapy platform. While Bristol trades at a high multiple on near-term earnings (26x 2016E), we forecast a roughly 24% EPS CAGR for the company through 2020 with substantial potential upside to these estimates as we get additional clarity on the company's pipeline. Valuation Bristol trades at around 26x our 2016 EPS estimate of $2.25. This represents a 58% premium to its US major pharma peers. Recall that the US major pharma group currently trades at a 14% premium to the S&P 500 on 2016E PIE. Establishing Dec-2016 price target of 178 (previous Dec-15 price target of $75). Our price target is based on a DCF methodology as we believe this best captures the overall value of these businesses. For our Bristol DCF, we take the present value of cash flows within our forecast window and thereafter wind down the existing products business while including risk-adjusted contributions from pipeline assets. We use a 0% sector terminal growth rate and a WACC of 9.0% (above recent norms based on a higher equity risk premium given the litany of issues facing the sector over the next few years). This translates into a DCF value of $78. Risks to Rating and Price Target Risks to our Ovenveight rating and price target include greater than expected operating margin pressure if SG&A spend moves higher (negative) and slower than expected product launches (negative). 2 This document is being provided for the exclusive use of LAUREN ZAKARIAN-COGSWELL at JPMorgan Chase & Co. and clients of J.P. Morgan. EFTA01087644  Chns Schott. CFA North America Equity Research 30 September 2015 J.P.Morgan Bristol-Myers Squibb Company: Summary of Financials Income Statement - Annual FY14A FY15E FY18E FY17E Income Statement • Quarterly 1O15A 2015A 3415E 4415E Revenues 15,879 16,034 16.907 19.076 Revenues 4.041A 4,163A 3,775 4,055 Castor produces sold (3,781) (3,699) (3.804) (4,101) Cost of products sold (813)A (988)1 ISM (973) Gross profit 12,098 12,335 13.103 14.975 Gross profit 3.226A 3,175A 2,850 3,082 SG8A (4,717) (4,800) (4.896) (4,994) SG&A (1,028)A (1,132)A (1,168) (1,472) R&D (3,913) (4,124) (4.259) (4,397) R&D (854)A (985)A (1,010) (1,276) Operating income 3,468 3,410 3,918 5,584 Operating income 1,3413A 1,058A 672 334 Net merest Income)/ expense (102) (81) 48 132 Net interest (income) / expense (21)A (23)A (18) (18) Other income / (expense) Other income / (expense) • Pretax income 3,885 3,981 4,621 6,381 Pretax income 1.523A 1,188A 804 466 Income taxes (767) (836) (832) (1.149) Income taxes (317)A (278)1 (153) (89) Net name - rearing 3,093 3,072 3.770 5,213 Net income - recurring 1.193A 890A 631 357 Diluted shares outstanding 1,670 1,669 1,678 1,686 Diluted shares outstanding 1.676A 1,667A 1,667 1,667 EPS - excluding non-reaming 1.85 1.84 2.25 3.09 EPS • excluding nch.recurring 0.71A 0.53A 0.38 0.21 EPS - marring 1.85 1.84 2.25 3.09 EPS • recurring 0.71A 0.53A 0.38 0.21 Balance Sheet and Cash Flow Data FY14A FY15E FY18E FY17E Ratio Analysts FY14A FY15E FY18E FY17E Cash and cash equivalents 5,571 3,932 6,061 9,285 Sales growth (3.1%) 1.0% 5.4% 12.8% Short Term Investment 1,864 1,277 1,277 1,277 EBIT growth OA% (1.7%) 14.9% 42.5% Accounts receivable 3,390 3,605 3,522 3,974 EPS growth - recurring 1.9% (0.7%) 22.1% 37.6% Inventories 1,560 1,622 1,585 1,709 Other current assets 2,223 2,604 2,604 2,604 Gross margin 76.2% 76.9% 77.5% 78.5% Ctrrent assets 14,608 13,040 15.050 18.849 EBIT margin 21.8% 21.3% 23.2% 29.3% PP&E 4,417 4,302 4.210 4,171 Total assets 33,749 31,677 33.295 36.805 Tax rate 19.7% 21.0% 18.0% 18.0% Net margin 19.5% 19.2% 22.3% 27.3% Total debt 7,832 7,370 7.370 7,370 Total liabilities 18,766 17,061 17,212 17.825 Return on assets (ROA) 9.2% 9.7% 11.3% 14.2% Shareholders' equity 14,983 14,616 16,083 18,980 Return on equity (ROE) 20.6% 21.0% 23.4% 27.5% Net tome (including charges) 2,029 2,078 3,770 5,213 Free cash flow yield 2.7% 2.0% 4.6% 5.6% 467 612 730 671 Change ri working capital 1,172 (1.262) 271 37 Other (329) 124 183 183 Cash flow from operations 3,148 2.320 4.953 6,103 Capex (526) (458) (338) (382) Free cash now 2,704 1,926 4,576 5,613 Cash flow from investing activities 1,216 (683) (338) (382) Cash flow from finanong activities (2.437) (3.299) (2.486) (2.498) Source: Company reports and J.P. Morgan estimates. Note: 5 in moons (except per-share dala).Fiscal year ends Dec 3 This document is being provided for the exclusive use of LAUREN ZAKARIAN-COGSWELL at JPMorgan Chase & Co. and clients of J.P. Morgan. EFTA01087645  Chris Schott. CFA North America Equity Research 30 September 2015 J.P.Morgan Analyst Certification: The research analyst(s) denoted by an "AC" on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an "AC" on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that (I) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no pan of any of the research analyses compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention. Important Disclosures • Lead or Co-manager: I.P. Morgan acted as lead or co-manager in a public offering of equity andfor debt securities for Bristol-Myers Squibb Company within the past 12 months. • Client: I.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Bristol-Myers Squibb Company. • Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: Bristol-Myers Squibb Company. • Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: Bristol-Myers Squibb Company. • Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-securities-related: Bristol-Myers Squibb Company. • Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking Bristol- Myers Squibb Company. • Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Bristol-Myers Squibb Company. • Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from Bristol-Myers Squibb Company. Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for compendium reports and all J.P. Morgan-covered companies by visiting littps://ionun.comiresearchtdiselosures, callint or e-mailing "ith your request. J.P. Morgan's Strategy, Technical, and Quantitative Research tears may ccreen romnanies not covered by I P Morn . For important disclosures for these companies, please call =r - M r c-mai 4 This document is being provided for the exclusive use of LAUREN ZAKARIAN-COGSWELL at JPMorgan Chase & Co. and clients of J.P. Morgan. EFTA01087646  Chns Scar.. CFA North America Equity Research 30 September 2015 J.P.Morgan Date Rating Share Price Price Target Bristot.myers Squibb Company (itrAv. EtsAv US) Price Chart 15) (5) 126 24 Jun-08 N 20.23 ONS52 OW616 06-Jan-09 N 19-Oct-09 N 23.23 22.88 23.00 25.00 ICS - 64 IN$26 /1532 NM IN OW660IOW666 05-Jan-10 N 18-Oct-10 N 25.23 27.20 26.00 27.00 Ptictip 63 IN [NM PIM I ININ 531 N3S3 IMPS I INLOWS14 OPP' 27-Jan-11 N 25-Mar-11 N 25.79 27.29 31.00 32.00 26-Sep-11 N 30.89 33.00 04-Jun-12 N 33.66 35.00 42 25-Jul-12 N 34.95 38.00 03-Jun-13 N 47.59 48.00 21 25-Jul-13 N 43.93 50.00 16-Sep-13 OW 45.14 52.00 23-Oct-13 OW 48.96 54.00 Oa 19-Dec-13 OW 52.59 60.00 Oct Apr Ott API Ott oe 08 06 11 12 14 1 10-Oct-14 OW 50.28 63.00 03-Nov-14 OW 58.19 66.00 Scow Ilbembn and J P. I/organ pnce data actostecl for stock spin and dretchtit• EntIn comp' Jun 24.200$ • Jan Pt 20>) 20-Jan-15 OW 62.31 70.00 05-Mar-15 OW 66.05 75.00 The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW - Overweight, N- Neutral, UW Underweight, NR - Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight (Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Neutral (Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.] Underweight (Over the next six to twelve months, we expect this stock will underperfonn the average total return of the stocks in the analyst's (or the analyst's team's) coverage universe.) Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock's expected total return is compared to the expected total return of a benchmark country market index, not to those analysts' coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst's coverage universe can be found on J.P. Morgan's research website, www.jpmorganmarkets.com. Coverage Universe: Schott, Christopher: AbbVie (ABBV), Allergan plc (AGN), Bristol-Myers Squibb Company (BMY), Coherus (CHRS), Eli Lilly & Company (LLY), Endo International PLC (ENDP), Impax Laboratories (II:1XL), Kythera Biopharmaceuticals (KYTH), Mallinckrodt (MNK), Merck & Co., Inc. (MRK), Mylan Inc. (MYL), Perrigo Company (PRGO), Pfizer Inc. (PFE), Sagent Pharmaceuticals (SGNT), Teva Pharmaceuticals (TEVA), Valeant Pharmaceuticals (VRX), Zoetis (ZTS) J.P. Morgan Equity Research Ratings Distribution, as ofJune 30, 2015 Overweight Neutral Underweight (buy) (hold) (sell) J.P. Morgan Cilobal Equity Research Coverage 44% 43% 13% IB clients.* 51% 48% 38% JEWS Equity Research Coverage 45% 47% 9% IB clients.* 71% 66% 57% 'Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category: our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation arc not included in the table above. Equity Valuation and Risks: For valuation methodology and risks -icsaciated with covered companies or price targets for covered companies, please see the most recent company-specific research report at httplAvww.jpmorganinarkets.com, contact the primary analyst or your J.P. Morgan representative, or email research.disclosure.innuiriesevinmorgan.com. 5 This document is being provided for the exclusive use of LAUREN ZAKARIAN-COGSWELL at JPMorgan Chase & Co. and clients of J.P. Morgan. EFTA01087647  Chris Schott. 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