The major stock market indices finished last week higher, marking gains for three straight weeks. A solid start to the third-quarter earnings season, a decline in initial jobless claims, and declining COVID-19 cases have driven the performance of the stock market of late. According to FactSet, 23% of S&P 500 member companies had reported results for the third quarter as of October 22. Of these companies, 84% have surpassed consensus EPS estimates, besting the 76% five-year average.
While high inflation, a potential hike in corporate taxes, and supply chain bottlenecks continue to spook investors, an impressive earnings season should keep driving the market in the near term. Furthermore, U.S Treasury Secretary Janet Yellen said yesterday that the United States was not losing control of inflation, and that she expects inflation levels to return to normal by the second half of 2022.
Given this backdrop, we think it could be wise to bet on quality stocks Bristol-Myers Squibb Company (BMY), Biogen Inc. (BIIB), and Telefonaktiebolaget LM Ericsson (publ) (ERIC), which look undervalued at their current price levels.
Bristol-Myers Squibb Company (BMY)
BMY in New York City is a global biopharmaceutical company that discovers, develops, and delivers medicines for serious diseases. The company’s pharmaceutical products include chemically synthesized drugs or small molecules, and products produced from biological processes, called biologics. In addition, it offers Revlimid, Abraxane, Reblozyl, Inrebic, Onureg, and other products, including a range of treatments for oncology, immunology, cardiovascular, and fibrosis.
This month, BMY received the European Commission’s approval for Opdivo (nivolumab) in combination with fluoropyrimidine- and platinum-based combination chemotherapy for the first-line treatment of adult patients. With this approval, the company aims to serve patients with HER2-negative advanced or metastatic gastric, gastroesophageal junction, and esophageal adenocarcinomas problems.
BMY’s net product sales increased 16.2% year-over-year to $11.41 billion in the second quarter, ended June 30, 2021. The company’s total revenues grew 15.5% from its year-ago value to $11.7 billion. Its net earnings came in at $1.06 billion, compared to an $80 million net loss in the prior-year quarter. Also, the company’s EPS amounted to $0.47, compared to a $0.04 loss per share in the second quarter of 2020.
Analysts expect BMY’s revenue for its fiscal year 2021 to be $46.44 billion, representing 9.2% growth year-over-year. The company has an impressive surprise earnings history; it surpassed the consensus EPS in three of the trailing four quarters. Its EPS is expected to grow 16% in the current year.
In terms of forward EV/Sales, BMY is currently trading at 3.46x, which is 49.5% lower than the 6.84x industry average. Also, in terms of its forward non-GAAP P/E, the stock is currently trading at 7.71x, which is 66.5% lower than the 23x industry average.
BMY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
Also, the stock has an A grade for Value, and a B for Quality and Growth. We’ve also graded BMY for Sentiment, Momentum, and Stability. Click here to access all BMY’s ratings.
BMY is ranked #14 of 209 stocks in the Medical – Pharmaceuticals industry.
Biogen Inc. (BIIB)
BIIB is a global biotechnology company that discovers, develops, manufactures, and delivers therapies for treating neurological and neurodegenerative diseases. The Cambridge, Mass.-basedcompany’s marketed products include TECFIDERA, VUMERITY, AVONEX, PLEGRIDY, TYSABRI, FAMPYRA, and FUMADERM. In addition, it has collaboration and license agreements with Acorda Therapeutics, Inc.; Alkermes Pharma Ireland Limited; Bristol-Myers Squibb Company; Eisai Co., Ltd.; Genentech, Inc.; Neurimmune SubOne AG; Ionis Pharmaceuticals, Inc.; Ginkgo Bioworks; Capsigen Inc.; and Mirimus, Inc.
This month, BIIB and Sage Therapeutics, Inc. plans to submit a New Drug Application (NDA) to the U.S. Food and Drug Administration (FDA) for zuranolone. Through the approval of zuranolone, the companies should be able to provide treatment for major depressive disorder (MDD) and an additional filing for postpartum depression (PPD).
During its third fiscal quarter, ended September 30, 2021, BIIB’s total revenue came in at $2.78 billion. The company’s operating income amounted to $794 million during the period. Its cash-and-cash equivalents increased 13.2% for the six months ended September 30, 2021, to $2.96 billion. Also, the company’s net income was $318.1 million for the quarter.
BIIB has an impressive earnings surprise history; it beat the consensus EPS estimates in three of the trailing four quarters. The company’s EPS is expected to increase 1.2% next year. The stock has soared 8.1% in price year-to-date.
In terms of forward EV/EBITDA, BIIB is currently trading at 10.04x, which is 37.5% lower than the 16.06x industry average. In addition, its 11.85x forward EV/EBIT is 44.8% lower than the 21.48x industry average.
BIIB’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to a Buy in our proprietary rating system. Also, the stock has an A grade for Value, and a B for Quality and Growth.
Telefonaktiebolaget LM Ericsson (publ) (ERIC)
Headquartered in Stockholm, Sweden, ERIC offers communication infrastructure, services, and software solutions to telecommunications and other industries. It operates through four segments–Networks; Digital Services; Managed Services; and Emerging Business and Other.
This month, ERIC and Telenet, a Belgian Communications Service Provider, extended their managed services partnership with a five-year deal. ERIC intends to enhance customer experience, drive efficacy, and expand its footprint by leveraging its competitive 5G portfolio through this deal.
ERIC’s net income increased 3.6% year-over-year to SEK5.8 billion ($676.11 million) for its third fiscal quarter, ended September 30, 2021. The company’s net sales came in at SEK56.3 billion ($6.56 billion) during the period. Its EBIT grew 2.3% from its year-ago value to SEK8.8 billion ($1.03 billion). Also, the company’s EPS rose 7.5% from the prior-year quarter to SEK1.73 ($0.2).
For its fiscal year 2021, analysts expect ERIC’s revenue to be $26.66 billion, representing 5.5% year-over-year growth. In addition, its EPS is expected to increase 11.1% in the current year and 25% next quarter. ERIC’s stock price has surged 4.5% over the past month
In terms of forward EV/Sales, ERIC is currently trading at 1.35x, which is 67.7% lower than the 4.17x industry average. Also, in terms of its forward Price/Sales, the stock is currently trading at 1.44x, which is 64.8% lower than the 4.09x industry average.
It’s no surprise that ERIC has an overall B rating, which equates to a Buy in our POWR Rating system. Also, the stock has an A grade for Value, and a B grade for Stability.
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BMY shares rose $0.05 (+0.09%) in premarket trading Monday. Year-to-date, BMY has declined -4.88%, versus a 22.60% rise in the benchmark S&P 500 index during the same period.
About the Author: Priyanka Mandal
Priyanka is a passionate investment analyst and financial journalist. After earning a master's degree in economics, her interest in financial markets motivated her to begin her career in investment research. More...
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