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Is Bristol-Myers a Buy After $13.1 Billion Buy of MyoKardia?

MyoKardia is surging after a takeout deal from Bristol-Myers Squibb, which is marginally higher on the day. Does the deal make Bristol-Myers a buy?

We’ve got a Merger Monday spotlight on Bristol-Myers Squibb  (BMY) - Get Bristol-Myers Squibb Company Report after the company agreed to buy MyoKardia  (MYOK) - Get MyoKardia, Inc. Report in a $13.1 billion deal.

The deal is sending shares of MyoKardia up about 58% on the day. The rally leaves shares near $220, just shy of the $225 takeout price.

The all-cash deal is expected to close in the fourth quarter of 2020 and will help Bristol-Myers strengthen its cardiovascular portfolio.

However, Bristol-Myers' reaction has been somewhat neutral, with the stock up just 0.4% on the day. While the acquisition will strengthen its cardiovascular offerings, it’s not expected to be accretive until 2023.

That’s likely giving investors some pause with the stock, even if it’s good news over the long term. Let’s look at the chart to see what levels matter now.

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Trading Bristol-Myers

Daily chart of Bristol-Myers Squibb stock.

Daily chart of Bristol-Myers stock.

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Bristol-Myers has not had an easy run in 2020. After closing on its deal to buy Celgene in late 2019, shares were in the midst of a strong momentum period. The stock ran from a low near $40 in July to $62 around the end of the year.

In the first quarter of 2020, Bristol-Myers was flirting with and quietly succeeding with a breakout over $64. Then the coronavirus hit. 

After a violent decline in March followed by a strong rebound, shares have settled down into an admittedly wide range. Now, we need to see some follow-through before we can trade this name on the long side.

Specifically, there’s a lot of overhead with this name. The 10-week, 20-week and 50-week moving averages are all within about 30 cents of each other, acting as resistance near $59.

If we can get a move above those marks, it’s possible we get a weekly-up rotation over last week’s high at $60.57, followed by a monthly rotation over the September high at $61.80.

That could get some momentum going into the name, potentially putting $64 resistance in play, followed by the 2020 high at $66.76.

On the downside, let’s see if we get a close below the 61.8% retracement at $58.34 and the 10-month moving average currently near $58.17. Below those marks puts this week’s low on the table at $57.95, followed by the September low at $56.48.