We believe that Bristol Myers Squibb stock (NYSE: BMY) is a better pick than its sector peer, HCA stock (NYSE: HCA), a healthcare facilities operator, given its attractive valuation compared to its historical average. Although BMY trades at a higher valuation of 3.0x revenues than 1.3x for HCA, this valuation gap is justified given BMS’ superior revenue growth, profitability, and financial position. Looking at stock returns, HCA stock has fared better than BMS and the broader indices. While BMY is down 10% this year, HCA is up 24%, and the S&P500 index is up 16%. There is more to the comparison, and in the sections below, we discuss why we believe BMY stock will offer higher returns than HCA stock in the next three years. We compare a slew of factors, such as historical revenue growth, returns, and valuation, in this analysis.
1. BMS’ Revenue Growth Is Better
- BMS’ revenue growth has been better, with a 23.7% average annual growth rate in the last three years, compared to 5.6% for HCA.
- BMS’ revenue growth was bolstered by its Celgene
CELG
- The rise in BMS revenue has also been driven by market share gains for some of its drugs, including its anticoagulant – Eliquis. However, the company now faces biosimilar competition for its top-selling drug – Revlimid.
- Looking at the last twelve month period, BMS saw its sales decline by 2.4% while HCA sales were up 1.9%.
- Revlimid sales declined a significant 32% y-o-y to $2.3 billion in 2022. However, Opdivo sales were up 11%, and some of its newly approved drugs, including Abecma, Zeposia, Reblozyl, and Breyanzi, were up between 30% and 80%. Most of these drugs are potentially blockbuster drugs, and as they gain market share, their sales growth will likely more than offset the decline from Revlimid.
- Still, BMY stock has been weighed down in the recent past due to investor concerns around Revlimid.
- For HCA Healthcare, the revenue growth over the recent past is driven by a rise in total admissions and revenue per admission.
- Equivalent admissions grew 6.8% y-o-y in 2021 and 2.1% in 2022 after seeing a 9.2% fall in 2020 due to the impact of the pandemic.
- Revenue per equivalent admission grew 10.5% in 2020, 6.8% in 2021, and 0.4% in 2022. The company will likely see a low single-digit rise in both metrics in the near term.
- Our Bristol Myers Squibb Revenue Comparison and HCA Revenue Comparison dashboards provide more insight into the companies’ sales.
- Looking forward, BMS will see Revlimid sales decline in 2023 and beyond. Some other drugs, including Abraxane and Orenica, are also likely to see a slowdown in sales, with increased competition. However, Opdivo, Eliquis, Reblozyl, Abecma, and Zeposia are expected to see continued market share gains in the near term, helping the company offset the decline from Revlimid.
- For HCA, revenue growth should be steady for the next few years, driven by a continued uptick in admissions and average revenue per admission.
2. BMS Is More Profitable
- BMS’ operating margin declined from 23% in 2019 to 18% in 2022, while HCA’s operating margin rose from 14% to 17% over this period.
- BMS’ operating margin of 19% for the last twelve-month period fares marginally better than 17% for HCA.
- Our Bristol Myers Squibb Operating Income Comparison and HCA Operating Income Comparison dashboards have more details.
- Looking at financial risk, BMS fares better with its 28% debt as a percentage of equity lower than 47% for HCA and its 10% cash as a percentage of assets higher than 2% for the latter, implying that BMS has a better debt position and more cash cushion.
3. The Net of It All
- We see that BMS has demonstrated better revenue growth, is more profitable, and has a better financial position. On the other hand, HCA is trading at a comparatively lower valuation multiple.
- Now, looking at prospects, using P/S as a base, due to high fluctuations in P/E and P/EBIT, we believe BMS is the better choice of the two.
- If we compare the current valuation multiples to the historical averages, BMS fares far better, with its stock currently trading at 2.9x revenues vs. the last five-year average of 4.5x. In contrast, HCA stock trades at 1.4x trailing revenues vs. the last five-year average of 1.0x.
- Our Bristol Myers Squibb Valuation Ratios Comparison and HCA Valuation Ratios Comparison have more details.
- It appears that the investors have priced in Revlimid’s biosimilar risks. While a slight decline in the valuation multiple compared to the historical average is justified for BMY, given the slowing earnings growth, the current valuation multiple is much lower and should likely rise going forward. Overall, investors willing to pick one of these two healthcare names are likely to be better off buying BMY over HCA for better returns, in our view.
While BMY may outperform HCA in the next three years, it is helpful to see how Bristol Myers Squibb’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.
Furthermore, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised at how counter-intuitive the stock valuation is for FirstEnergy vs. HCA.
Given higher inflation and the Fed raising interest rates, among other factors, BMY stock has seen a 10% fall this year. Can it drop more? See how low Bristol Myers Squibb stock can go by comparing its decline in previous market crashes. Here is a performance summary of all stores in previous market crashes.
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