Answer first
The operating thesis is unchanged. Risk adjusted product and pipeline SOTP is primary because BMY has finite life product cash flows and uncertain replacement assets. Weighted value remains near price, but the bear tail is wider.
Company specific valuation method
Approved commercial products use enterprise FCF DCF. Unapproved pipeline receives separate rNPV. Net debt and diluted shares convert enterprise value to per share value.
Normalized FCF and adjusted earnings P E are cross checks. EV to EBITDA is context only. Outputs are not averaged.
Bear, base, and bull
| Case | Probability | Year 1 FCF | Year 5 FCF | Pipeline rNPV | Net debt | Target |
|---|---|---|---|---|---|---|
| Bear | 25% | $9.5B | $6.8B | $4.0B | $34.0B | $24.43 |
| Base | 50% | $11.2B | $10.0B | $10.0B | $30.5B | $63.01 |
| Bull | 25% | $12.2B | $14.5B | $18.0B | $27.5B | $120.50 |
Weighted value $67.7389. Expected total value with dividend $70.2589.
Five pillars
| Pillar | Prior | Revised |
|---|---|---|
| Business Quality | 5.0 | 5.0 |
| Management Quality | 5.5 | 5.5 |
| Industry Tailwind | 6.5 | 6.5 |
| Valuation and Margin of Safety | 5.5 | 5.5 |
| Risk and Asymmetry | 5.5 | 4.5 |
| Conviction | 5.500 | 5.400 |
Old versus new
Targets change from $44.00, $65.10, and $91.00 to $24.43, $63.01, and $120.50. Original controlling weighted value was $66.30. Revised value is $67.74.