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Bristolís Forecast

Buy custom Bristolís Forecast essay

BMY (Bristol Myers Squibb Co) is a global biopharmaceutical company that is propelled by the desire to develop, discover as well as deliver innovative solutions through medicinal approach so as to assist patients get effective service delivery. The following paper will evaluate the forecasting concept, valuation of stock prices and a general analysis of how the company has performed so far.

Forecasting

In order to carry out an elaborate forecasting, the analysis employed the use of FSAP software package in order to evaluate the different levels of performance in its financial statements. It is worth noting the overall all values in USD millions continued to increase considerably since 2007 with an estimated of 19.35B in 2007 and a recorded outcome of 21.24B. The trend evaluated by the software package was intended to examine a consistent trend over the years and how the statement has performed in a general perspective. The highlighted forecast assisted the paper in outlining a forecast that demonstrates two years namely 2011 and 2012. The forecast will also take into account the economic hardships that face several countries and acknowledge that the trend will not be able to change drastically.

Bristol- Mayers Squibb has been able to grow its revenue from $19.5 (2010) to $21.2B (2012). The company was able to reduce the percentage attributed to cost of goods sold from 26.5 % to 26%. It resulted in the increase in the bottom line growth from 3.1 B to 3.7 B. This company’s management injected debt into capital that is in-line to industry norms. In addition, they were sufficient liquidity to meet its current financial obligation. Accounts receivable in the industry is 54.91 days. Bristol-Myers Squibb Company was the least efficient in the industry which was 85.52 days of the COGS (Cost of Goods of Sold).

The rate of growth is a reflection of the daily low as well as daily high as the company continues to perform extremely well in the financial markets. The estimated percentage growth between 2011 and 2012 as will be evaluated by the software package is 9.03%. The overall projection will be characterized by evaluating the common size rates because the nature of selling process. Other features include an analysis of the R&D expenses and the turnover rate of the company. The use FSAP software package will also help in generating the statement of stockholder’s equity and statement of cash flow and this allowed for a clear balance sheets and cash flow statements.

Valuation of Stock Price

Bristol Myers Squibb Co is a company in transition and a possible loss in the next year. However, growth is possible due to gains from possible investment made in R& D and acquisition. Therefore, profit from drugs from possible approval. The discounted cash flow model place the fair value of Bristol at over $ 50 per share. This represents a value is above the current price of $32 which is 60% above the discount cash flow.  The model forecast and revenues below 2012 level until 2017. Bristol has a very high WACC weighted average cost of capital of 9.33% which is above the industry which is 7% which was a weak value for drugs approval. Sensitive analysis performed on the stock revealed that Bristol’s beta values would remain the same above 7%. Therefore, the company will continue to pay more for every dollar financed result in reduced profitability.  While other factors other than WACC play a role in determining sales and productivity. Historically, Bristol has the industry best drug pipeline through continually investment and research and development. This has eventually had an impact on its balance sheet reducing its bottom line in the short-term. Future growth in the Bristol is high over the next five-years. R& D is expected to grow by 1% reducing the cost, but forecast expected to be over 20%. Moreover, Bristol’s dividend per share (DPS) is low, however the company is committed to pay and grow its dividends. Its ROIC has increase over 50 % in the past five years, main driven by strong NOPAT growth. Even through current trends suggest that the stock is undergoing a downtrend from its recent high technical analysis show that the stock is currently undervalued. 

Assumptions

The evaluation was based on a number of standard assumptions.

  • They maybe other factors other than stock omitted.
  • The value of the stock may differ from the estimate 

Discount Cash Flow

 

   

Invested Capital (Equity and Debt) Value

108967

 + Excess Cash

8733

- Interest Bearing Debt, Preferred and Minority Interest

5402

Equity Value (Net Present Value)

112298

Divide: Shares Outstanding

1,688 

Fair Value

67

Assumptions

The evaluation was based on a number of standard assumptions.

  • All cash are all treated as if the occurred at the end of the year.
  • DCF ignored risk adjustment made in the NPV 
  • Both methods assumed that the cash flow generated was reinvested back to the company
  • DCF it assume that the market is perfect

 

Per Share Metrics

2007

2008

2009

2010

2011

2012

Earnings

2.64

5.35

1.8

2.18

2.18

22.7

Dividends

1.2

1.25

1.29

1.33

1.33

1.02

NOPAT

1.67

2.2

2.72

3.1

3.1

18.40%

Free Cash Flow

1.75

-0.39

3.47

5.18

3.12

20.50%

Assumptions

The evaluation was based on a number of standard assumptions.

  • All cash are all treated as if the occurred at the end of the year
  • Ignored risk adjustment on NPV
  • Money generated was reinvested back to the company
  • That the market is perfect

Year

2012

2013

2014

2015

WACC

9.33

8.7

8.12

7.57

Assumptions

The evaluation was based on a number of standard assumptions.

  • The company WACC, market risk was applicable, risk –free are and taxes rate will be used to determine the cost of equity

Conclusion

The current fundamental analysis show that Bristol future growth project are good and the share value indicating a strong buy. However, other factors and events need to be observed to have a clear picture for future prospects of Bristol. First, patent challenges and ligations could adversely affect Bristol review. In addition, failure of the FDA approval of pipeline drugs could devastate future earnings and lastly changes in government health spending patterns will affect Bristol. 

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