3 Wide-Moat Stocks That Look Cheap: Biogen, Medtronic, and Bristol-Myers Squibb

The major stock indices are heading for their first weekly gains in three weeks. While investors appear to have digested the Fed’s first interest rate hike this year fairly well, concerns over its planned future interest rate hikes to control surging inflation, and persistent geopolitical tensions, will likely keep the stock market under pressure in the near term. 

Wide-moat companies are regarded as having a competitive advantage in the market. These stocks generally perform well when inflation and interest rate concerns peak due to their enhanced ability to pass on price increases and finance growth without heavy borrowings. Furthermore, the valuations of wide-moat stocks have declined recently, which could be an opportunity for investors to scoop them up.

Thus, wide moat stocks Bristol-Myers Squibb Company (BMY), Medtronic plc (MDT), and Biogen Inc. (BIIB) could be solid bets in this scenario. These stocks look undervalued at their current price levels.

Bristol-Myers Squibb Company (BMY)

BMY in New York City is a developer, licenser, manufacturer, and marketer of biopharmaceutical products worldwide. The company’s offerings include Revlimid, an oral immunomodulatory drug for treating multiple myeloma, among others.

On March 4, BMY announced that the United States Food and Drug Administration (FDA) had approved Opdivo® (nivolumab) in combination with platinum-doublet chemotherapy every three weeks for three cycles for treating adult patients with resectable non-small cell lung cancer (NSCLC). This might add to the company’s revenue stream in the future.

On March 1, BMY declared a $0.54 per share quarterly dividend, payable to shareholders on May 2. Its current dividend translates to a 3.06% yield. 

In terms of its forward non-GAAP P/E, BMY is currently trading at 9.04x, which is 57.2% lower than the 21.1x industry average. Its 9.22 forward EV/EBIT multiple is 47.6% lower than the 17.59 industry average.

For its fiscal fourth quarter, ended Dec. 31, BMY’s total revenues increased 8.3% year-over-year to $11.99 billion. Its non-GAAP net earnings, attributable to BMY, rose 22.2% from the prior-year quarter to $4.07 billion, while its non-GAAP EPS improved 25.3% from the same period last year to $1.83.

Analysts expect BMY’s EPS to increase 11.5% year-over-year to $1.94 in its fiscal quarter, ending March 31, 2022. The Street expects revenue for the same period to rise 3.2% from the prior-year quarter to $11.42 billion. In addition, BMY has topped consensus EPS estimates in three out of the trailing four quarters.

The stock has gained 14.6% in price over the past three months and 4.6% over the past month to close yesterday’s trading session at $70.34.

BMY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

BMY has a Value grade of A and a Growth, Sentiment, and Quality grade of B. In the 174-stock Medical – Pharmaceuticals industry, it is ranked #2.

To see the additional POWR Ratings for Momentum and Stability, click here.

Click here to checkout our Healthcare Sector Report for 2022

Medtronic plc (MDT)

MDT is a developer, manufacturer, distributor, and seller of device-based medical therapies. The company, headquartered in Dublin, Ireland, operates through the four broad segments of Cardiovascular Portfolio; Neuroscience Portfolio; Medical Surgical Portfolio; and Diabetes Operating Unit.

On March 9, MDT announced that it had agreed  with Vizient, a leading healthcare performance improvement company, to add an AI-powered surgical video management and analytics platform for the operating room Touch Surgery™ Enterprise to Vizient’s offerings. This move might benefit the company.

On March 4, MDT announced a $0.63 per ordinary share quarterly dividend, representing an 8.6% increase over the prior year, payable to shareholders on April 22, 2022. Its current dividend translates to a 2.3% yield.

MDT’s 4.59 forward Price/Sales multiple is 15.6% lower than the 5.45 industry average. In terms of its forward Price/Book, the stock is trading at 2.79x, which is 13.6% lower than the 3.23x industry average.

MDT’s non-GAAP operating profit increased 5.5% year-over-year to $2.18 billion in its fiscal third quarter, ended January 28. Its non-GAAP net income attributable to MDT and non-GAAP EPS came in at $1.85 billion and $1.37, respectively, up 5.3% and 6.2%,  from the prior-year period.

The $1.57 consensus EPS estimate for the fiscal quarter ending April 30, 2022, indicates a 4.7% year-over-year increase. Likewise, the $8.44 billion consensus revenue estimate for the same quarter reflects a rise of 3.1% from the prior-year quarter. Also, MDT has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.

Over the past month, the stock has gained 7.9% in price to close yesterday’s trading session at $108.90.

It is no surprise that MDT has an overall B rating, which translates to Buy in our POWR Rating system.

MDT has a B grade for Value, Sentiment, and Stability. It is ranked #18 out of the 168 stocks in the Medical – Devices & Equipment industry.

Click here to see the additional POWR Ratings for MDT (Growth, Momentum, and Quality).

Biogen Inc. (BIIB)

BIIB in Cambridge, Mass., engages in the discovery, development, manufacture, and delivery of therapies for treating neurological and neurodegenerative diseases. The company’s offerings include TECFIDERA, VUMERITY, SPINRAZA, and FUMADERM.

On March 14, BIIB and Eisai Co., Ltd. announced that they had amended their existing collaboration agreement on aducanumab, which is commercialized in the United States as ADUHELM® (aducanumab-avwa). As per the amendment, Eisai will receive a tiered royalty based on net sales of ADUHELM rather than sharing global profits and losses. This is expected to increase BIIB’s operational efficiency in addressing market developments. In addition, the investigational therapy lecanemab related supply agreement with Eisai has been extended from five to 10 years.

On February 7, BIIB and Xbrane Biopharma AB announced that the companies had entered a commercialization and license agreement to develop, manufacture, and commercialize Xcimzane™. This move might prove to be beneficial for the company.

In terms of non-GAAP forward P/E, BIIB is currently trading at 13.26x, which is 37.2% lower than the 21.1x industry average. Its 3.04 forward Price/Sales multiple is 44.2% lower than the 5.45 industry average.

For its fiscal fourth quarter, ended December 31, BIIB’s non-GAAP net income attributable to BIIB and non-GAAP EPS came in at $500.40 million and $3.39, respectively, up substantially from their negative year-ago values. Its income from operations increased 277.6% year-over-year to $587.10 million.

The Street $16.25 EPS estimate for its fiscal year 2023 indicates a 5.1% year-over-year improvement.

The stock has declined 2.5% in price over the past month to close yesterday’s trading session at $206.01.

This promising outlook is reflected in BIIB’s POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.

BIIB has a Value grade of A and a Growth and Quality grade of B. In the 425-stock Biotech industry, it is ranked #9.

In addition to the POWR Rating grades we have stated above, one can see BIIB ratings for Momentum, Stability, and Sentiment here.

BMY shares were trading at $70.06 per share on Friday morning, down $0.46 (-0.65%). Year-to-date, BMY has gained 13.35%, versus a -7.46% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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