Stock Analysis on Net

Bristol-Myers Squibb Co. (NYSE:BMY)

Dividend Discount Model (DDM) 

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In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Bristol-Myers Squibb Co., dividends per share (DPS) forecast

US$

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Year Value DPSt or Terminal value (TVt) Calculation Present value at 9.49%
0 DPS01 1.96
1 DPS1 1.93 = 1.96 × (1 + -1.30%) 1.77
2 DPS2 1.95 = 1.93 × (1 + 0.71%) 1.63
3 DPS3 2.00 = 1.95 × (1 + 2.72%) 1.52
4 DPS4 2.10 = 2.00 × (1 + 4.74%) 1.46
5 DPS5 2.24 = 2.10 × (1 + 6.75%) 1.42
5 Terminal value (TV5) 86.99 = 2.24 × (1 + 6.75%) ÷ (9.49%6.75%) 55.28
Intrinsic value of Bristol-Myers Squibb Co. common stock (per share) $63.07
Current share price $76.19

Based on: 10-K (reporting date: 2021-12-31).

1 DPS0 = Sum of the last year dividends per share of Bristol-Myers Squibb Co. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 3.12%
Expected rate of return on market portfolio2 E(RM) 13.11%
Systematic risk of Bristol-Myers Squibb Co. common stock βBMY 0.64
 
Required rate of return on Bristol-Myers Squibb Co. common stock3 rBMY 9.49%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rBMY = RF + βBMY [E(RM) – RF]
= 3.12% + 0.64 [13.11%3.12%]
= 9.49%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Bristol-Myers Squibb Co., PRAT model

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Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in millions)
Cash dividends declared 4,455  4,178  3,035  2,630  2,573 
Net earnings (loss) attributable to BMS 6,994  (9,015) 3,439  4,920  1,007 
Revenues 46,385  42,518  26,145  22,561  20,776 
Total assets 109,314  118,481  129,944  34,986  33,551 
Total Bristol-Myers Squibb Company shareholders’ equity 35,946  37,822  51,598  14,031  11,741 
Financial Ratios
Retention rate1 0.36 0.12 0.47 -1.56
Profit margin2 15.08% -21.20% 13.15% 21.81% 4.85%
Asset turnover3 0.42 0.36 0.20 0.64 0.62
Financial leverage4 3.04 3.13 2.52 2.49 2.86
Averages
Retention rate -0.15
Profit margin 6.74%
Asset turnover 0.45
Financial leverage 2.81
 
Dividend growth rate (g)5 -1.30%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

2021 Calculations

1 Retention rate = (Net earnings (loss) attributable to BMS – Cash dividends declared) ÷ Net earnings (loss) attributable to BMS
= (6,9944,455) ÷ 6,994
= 0.36

2 Profit margin = 100 × Net earnings (loss) attributable to BMS ÷ Revenues
= 100 × 6,994 ÷ 46,385
= 15.08%

3 Asset turnover = Revenues ÷ Total assets
= 46,385 ÷ 109,314
= 0.42

4 Financial leverage = Total assets ÷ Total Bristol-Myers Squibb Company shareholders’ equity
= 109,314 ÷ 35,946
= 3.04

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= -0.15 × 6.74% × 0.45 × 2.81
= -1.30%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($76.19 × 9.49%$1.96) ÷ ($76.19 + $1.96)
= 6.75%

where:
P0 = current price of share of Bristol-Myers Squibb Co. common stock
D0 = the last year dividends per share of Bristol-Myers Squibb Co. common stock
r = required rate of return on Bristol-Myers Squibb Co. common stock


Dividend growth rate (g) forecast

Bristol-Myers Squibb Co., H-model

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Year Value gt
1 g1 -1.30%
2 g2 0.71%
3 g3 2.72%
4 g4 4.74%
5 and thereafter g5 6.75%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= -1.30% + (6.75%-1.30%) × (2 – 1) ÷ (5 – 1)
= 0.71%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= -1.30% + (6.75%-1.30%) × (3 – 1) ÷ (5 – 1)
= 2.72%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= -1.30% + (6.75%-1.30%) × (4 – 1) ÷ (5 – 1)
= 4.74%