In this piece, I used TipRanks’ comparison tool to evaluate two pharmaceutical stocks, Merck & Co. (NYSE:MRK) and Bristol-Myers Squibb (NYSE:BMY), to determine which is better. Both stocks haven’t done much year-to-date, with Merck up 1.4% and Bristol-Myers down 2.6%. However, Merck has skyrocketed over 35% in the last 12 months versus Bristol-Myers’ 5.2% decline. Investors may be wondering if there’s any more upside left for Merck and why Bristol-Myers has lagged. Well, a closer look reveals that MRK looks better than BMY.
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Merck & Co. (NYSE:MRK)
Merck looks undervalued relative to its industry and history. The company will lose exclusivity on its key cancer drug, but it has plans to deal with the issue, potentially creating a buying opportunity. Thus, a bullish view looks appropriate, with the caveat that a better entry point might appear.
Merck is trading at a price-to-earnings (P/E) ratio of 19.1 times and a price-to-sales (P/S) ratio of 4.6, compared to its mean P/E of 35 and mean P/S of 4.4 over the last five years. Meanwhile, the American pharmaceutical industry is trading at a P/E of about 23, versus its three-year average of 44, and a P/S of around 4.4, the same as its three-year average.
Unfortunately, Merck faces significant risk as its patent for Keytruda, a $20 billion drug, expires in 2028. However, the company hopes recent acquisitions like Imago BioSciences, which closed in the first quarter, will help it replace the lost revenue.
Merck is also trying to patent new formulations of Keytruda, filing more than 100 patents linked to the drug to try to extend its exclusivity to 2036. However, the pharmaceutical giant faces calls from Senator Elizabeth Warren and others for the patent office to scrutinize its practices, so this is far from a surefire win.
Notably, several Merck insiders unloaded significant numbers of shares about two months ago, including a massive sale of $7.8 million worth of shares by Executive Vice President Jennifer Zachary after exercising some options. Those sales appear to have occurred around the time the stock reached record highs.
What is the Price Target for MRK Stock?
Merck has a Moderate Buy consensus rating based on 14 Buys, six Holds, and zero Sell ratings assigned over the last three months. At $118.83, the average Merck stock price target implies upside potential of 6.2%.
Bristol-Myers Squibb (NYSE:BMY)
Bristol-Myers Squibb looks fairly valued, although that could change. The company also faces a patent cliff, putting it on par with Merck in that respect, except that it’s less profitable, with a net income margin of 14% to Merck’s 24.5%. For these reasons, a neutral view looks appropriate for Bristol-Myers.
Bristol-Myers Squibb is trading at a P/E of about 23.5, putting it roughly in line with the current industry average and a P/S of about 3.2, slightly below the industry. Over the last five years, the company’s mean P/E has been negative due to a sizable $9 billion loss in Fiscal 2020. Excluding that negative period, Bristol-Myers’ P/E has ranged from about 12 to 54. Further, Bristol-Myers’ mean P/S over the last five years has been about 3.8.
Like Merck, Bristol-Myers Squibb also faces a significant patent cliff later this decade, although it launched nine new drugs between 2020 and 2022, including three first-in-class treatments for three different diseases. Management feels the company’s new drug portfolio is “significantly de-risked,” and they have a few other drugs in their pipeline.
Bristol-Myers is also planning mergers and acquisitions as part of its strategy to deal with patent expirations. The company estimates that about half of its revenue in 2030 will come from acquisitions, including the 2019 Celgene takeover.
Also, like Merck, insiders have been selling shares of Bristol-Myers Squibb, unloading $18.8 million worth of shares over the last three months. Notably, Chairman and CEO Giovanni Caforio sold almost $18 million worth of shares about two months ago.
What is the Price Target for BMY Stock?
Bristol-Myers Squibb has a Moderate Buy consensus rating based on five Buys, three Holds, and one Sell rating assigned over the last three months. At $78.67, the average Bristol-Myers Squibb stock price target implies upside potential of 12.7%.
Conclusion: Bullish on MRK, Neutral on BMY
Merck shares have more than doubled over the last five years, demonstrating the long-term opportunities in this stock, even amid the patent-related cyclicality faced by every major pharmaceutical company. On the other hand, Bristol-Myers Squibb shares have risen only 32% over the last five years, suggesting that any potential future upside may be more limited than it might be with Merck.
Both companies may be decent dividend plays, with Merck’s yield at around 2.6% and Bristol-Myers’ at 3.2%. However, in terms of valuation and profitability, Merck looks like the better long-term play.
