Bristol: A Nasty Turn

With Bristol-Myers Squibb (BMY ) hitting new lows and speculation swirling that it might be a takeover target, has it become a buy? Hardly, say several pros--who argue that, on fundamental and technical grounds, it's still a stock to avoid. Most analysts give Bristol a sell, hold, or neutral rating. The shares plunged from 60 on Sept. 17 to 31 on Apr. 10. Fierce marketing in the fourth quarter--leading to groaning shelves at wholesalers--and stiff rivalry from generics brought an unexpected first-quarter drop in sales. So earnings of 47 cents a share trailed analysts' 56 cents estimate. Also, safety concerns delayed Food & Drug Administration approval of its Erbitux cancer medication.

Richard Evans of Sanford C. Bernstein, who has a neutral rating on Bristol, says he's set to downgrade it to a sell once he's sure that 2002 earnings will drop to $1.30--his current estimate--from $2.67 in 2001. The market will probably assign Bristol a price-earnings ratio of only 18, he says, which puts the stock's worth at 23. And his 2003 earnings forecast of $1.51 is also worrisome, he says, as it's way below previous estimates. At $1.51, the stock is worth 27. Even a takeover possibility hasn't persuaded him to buy. With Bristol's troubles, "no company will pay a premium," he says. "So I don't expect a bidding war." Staying independent, he adds, won't be easy for Bristol, which has "negative productivity trends," falling gross margins, and an underinvestment in research--with few drugs in the pipeline. "Based on the charts, the stock is a buy only in the 20-to-22 area," says Andy Addison of Addison Investment, who uses technical analysis in valuing stocks. "It's too early to buy," he says.

By Gene G. Marcial

    Before it's here, it's on the Bloomberg Terminal.