Bristol-Myer Stock May Jump 9% on Rising Forecasts

(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Bristol-Myers Squibb Co.'s (BMY) stock has had a rough 2018. Shares are down by roughly 2% while the S&P 500 has seen an increase of more than 8%. That doesn't tell the whole story, because shares of BMY had been down by as much as 18% in the middle of May. But shares roared back and are breaking out. It may result in the stock rising by more than 9%, based on technical analysis.

The pharmaceutical company's stock got a needed jolt after reporting strong second-quarter results. Earnings crushed estimates coming in more than 15% higher. Revenue beat estimates by 4%. The strong results and better-than-expected quarterly guidance has resulted in analysts upping their views. Now earnings are forecast to grow by 20% in 2018, up from prior views of about 14%.

BMY Chart

BMY data by YCharts

Bullish Technical Chart

Bristol's stock had a technical breakout in the middle of August after the price rose above $59.90. Additionally, shares have been trending higher since bottoming in mid-May. Now shares look poised to rise to roughly $65.50 from its current price of $59.95, an increase of more than 9%.

If there is one technical worry, it comes from the relative strength index (RSI). That's because the RSI has been trending sideways since July, despite the rising stock. Should the RSI continue to trend sideways, it may signal a bearish divergence. That may suggest that bullish momentum is leaving the stock.

Upping Estimates

Outside of the bullish technical breakout, the fundamentals for the business are improving, driven by strong revenue growth from its drugs Eliquis and Opdivo. As a result, analysts are upping their earnings estimates for the upcoming third quarter by 3%. Earnings are now forecast to climb by more than 18% versus last year to $0.89 per share. Revenue estimates have also increased, rising by more than 2%, and are forecast to climb by more than 7% versus last year to $5.6 billion.

Full-year earnings estimates have climbed by more than 6% and are estimated to grow by more than 20% in 2018 to $3.61. Meanwhile, revenue estimates have increased by more than 2% and are forecast to grow by more than 7% to $22.3 billion.

BMY EPS Estimates for Current Fiscal Year Chart

BMY EPS Estimates for Current Fiscal Year data by YCharts

Shares Still Cheap

BMY's stock is cheap when compared to its historical range, trading at 15.5 times 2019 earnings estimates of $3.88. Since 2015, shares have traded within a valuation between 14 to 31 times one-year forward earnings estimates.

It would seem that the stock's recent rise is coming on the back of an improving revenue and earnings story. It means the company will need to continue to deliver strong results in the coming quarters to keep shares trending higher.

Michael Kramer is the founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdingsInformation presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.

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