Bristol-Myers Squibb Co. (NYSE: BMY) may be one of the better alternatives for pharmaceutical and biohealth investors in 2020. Independent research firm Argus, which has none of the traditional potential conflicts of interest compared to sell-side research firms, sees better than 25% potential upside for the coming year. Most analysts issuing new Buy or Outperform ratings are calling for an implied total return of 8% to 10% at this stage in the decade-plus-long bull market.

Argus raised Bristol-Myers to Buy from Hold with an $80 target price. That represents 25.21% upside from the prior close of $63.94, before factoring in its 2.8% dividend yield for total return and income investors. The Refinitiv consensus analyst target price is just $65.00, and the street-high from the sell-side research team is just $75 for this stock.

One factor for the big upgrade and the highest expectations is recent progress in advancing the combined drug pipeline now that it has closed on its Celgene Corp. (NASDAQ: CELG) buyout. Argus now has a more positive view of its post-merger growth drivers and noted solid progress in advancing five key products to commercialization.

Argus is incorporating Celgene’s operations (excluding Otezla, which was sold) and raised its adjusted earnings estimates to $4.35 from $4.27 per share for 2019 and to $5.70 from $4.47 for 2020. The addition of Celgene also will add more than $15 billion to Bristol-Myers’s top line. Argus sees a five-year growth rate of 12% for earnings per share.

Another positive is in how the company will manage its cash for investors. Bristol-Myers also has announced a 9.8% increase in its annualized dividend to $1.80 at the same time that it is returning capital to shareholders in the form of stock buybacks, after a recent $7 billion buyback authorization was announced.

The Argus report said:

Given recent progress in advancing the combined BMY-CELG pipeline, we now have a more positive view of BMY’s post-merger growth drivers. Since the merger announcement in early January, two Celgene drugs (Reblozyl and Inrebic) have received FDA approval. A third drug, ozanimod, has been filed for regulatory review with the FDA and has a PDUFA date in March 2020. These products will add meaningfully to BMY’s growth drivers. In addition, positive clinical results have moved Celgene’s CAR T drugs (JCAR17 and bb2121) closer to regulatory filing and potential commercialization. These assets will complement BMY’s core franchise in Opdivo and Eliquis. We also note successful results in a phase 3 trial of Opdivo for non-small-cell lung cancer. The results increase the likelihood that the drug will receive regulatory approval as a first-line treatment that can compete with Merck’s Keytruda. To be sure, the company continues to face merger integration risks and financial risks from its heavy debt load. However, we believe that these risks are outweighed by the positives noted above.

Bristol-Myers also presented very positive clinical trial results for liso-cel and bb2121, two CAR T therapies that were acquired from Celgene. Apart from assets acquired from Celgene, the drug giant has demonstrated positive results in the Checkmate-227 trial for Opdivo that Argus feels may be enough to secure approval of the drug as a first-line treatment for non-small-cell lung cancer. In Part 1 of this trial, a combination of Opdivo and Yervoy showed higher overall survival as compared to chemotherapy.

While Bristol-Myers shares closed up 2.45% at $63.94 the day ahead of this call, its 52-week range of $42.48 to $64.22 shows how it has recently been a stronger stock than some of its peers. That said, its stock is up 42% from the end of summer but only up 23% year to date and only about 20% higher than this time a year ago. Its prior peak was roughly $75 back in the middle of 2016.

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