Two signs that a company is focused on creating significant value for its shareholders are when the company raises its dividends and when it returns its shares with attractive valuations.

Pharmaceutical stock Bristol Myers Squibb: (NYSE: BMY) It recently announced a 10.2% increase in its quarterly earnings to $ 0.54 per share. And if that was not enough to satisfy the shareholders, the company also allowed the repurchase of additional $ 15 billion worth of shares, or almost 11% of its $ 139 billion market capitalization.

This ambitious return on investment raises two questions. Can the company afford it? Are the shares currently buying? Let’s look at Bristol Myers Squibb cash flow capabilities, balance sheet: estimates to try to answer these questions.

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The Bristol Myers Squibb is a cash flow machine

Bristol Myers Squibb’s huge shareholder plan is based on the company ‘s expected output of $ 45 billion to $ 50 billion for shareholders in cash flow (FCF) from 2021 to 2023. That’s about one-third of its market capitalization for free. cash flow in just three years, which would be amazing. But as some companies tend to over-promise, let’s go deeper into whether this prediction is true or whether the management team wore pink glasses.

Bristol Myers Squibb generated $ 12.1 billion in operating cash flow for the first three quarters, compared to $ 653 million in capital expenditures. In just nine months, the company has provided $ 11.5 billion in free cash flow to shareholders. At this rate, it will generate $ 46 billion in free cash flow from 2021 to 2023. Bristol Myers Squibb can hit the bottom edge of its FCF target before even considering another powerful lever it can use to restrain its freedom. cash flow is even higher.

That leverage is its $ 13.5 billion position for the last quarter. This gives Bristol Myers Squibb the flexibility to buy a mid-sized company if it thinks such an acquisition goal might fit well into its existing drug portfolio.

Bristol Myers Squibb’s free cash flow for 2021 easily offset its $ 3.5 billion stake in և $ 3.3 billion in dividends paid during that time. Simply put, a company is a monster of free cash flow, which can afford significant market dividends in excess of 3.5% զգալի significant stock repurchases.

The balance is strong

Bristol Myers Squibb reduces more than enough free cash flow to finance its dividends և to repurchase shares. But can his balance sheet force equities to reduce dividends or repurchase shares?

The debt-to-profit ratio of the Company’s interest, taxes, depreciation and amortization (EBITDA) is 2.2. Note that the company’s EBITDA has fluctuated sharply for more than a decade, but the results of the third quarter are in line with its 13-year average of 2.2. The Bristol Myers Squibb debt-to-EBITDA ratio is weaker than: Johnson & Johnson:At 1.5, it is stronger than AbbVie:Numbers of 3.2.

Despite the generous supply of capital, Bristol Myers Squibb was able to reduce its long-term debt by $ 8.7 billion to date (as of September 30, 2021) to $ 39.7 billion in the quarter. This shows that the company can take a balanced approach to repurchasing its dividends, such as repurchasing debt.

Quality with reasonable evaluation

Bristol Myers Squibb seems to be a financially sound business. But is it worth buying at the current rate? Well, its primary cost-benefit ratio (P / E) of 7.9 is significantly lower than the median of the pharmaceutical industry at 11.4. This suggests that the stock may be a low-rated dividend growth stock for income investors.

Let’s weigh its growth prospects with industry. The company’s projected 6% annual revenue growth over the next five years is moderately lower than the industry average of 10%. This justifies a slightly lower rating multiplier, as long as the company does not prove that it can beat the patents on its top three drugs: Revlimid, Eliquis և Opdivo.

However, if you’re a revenue investor who thinks the Bristol Myers Squibb pipeline will be enough to overtake its current best-selling drug, the current $ 63 stock price seems like a good buy.

This article presents the opinion of a writer who may disagree with the position of the “official” recommendations of Motley Fool Premium Consulting. We are motley! Questioning an investment thesis, even our own, helps us all think critically about investing, making decisions that help us become smarter, happier, and richer.