Bristol: Buyout Bait?
The Street is thumbs-down on Bristol-Myers Squibb (BMY ). A string of fiascos has beaten down the stock -- from 73 in June, 2001, to 22 on Apr. 16. But some see it as an opportunity. Patrick Kaser of Brandywine Asset Management says Bristol, trading at 14 times the consensus 2003 earnings estimate of $1.60 a share, is at the low end of its historic range. He says it will climb 40% in a year as favorable developments kick in. (Bristol was featured in this column on Sept. 9, 2001, when the stock was at 25.) Among Bristol's past woes: a Food & Drug Administration rejection of ImClone Systems' Erbitux anticancer drug (Bristol owns the U.S. rights), a restatement of three-year results that cut revenues by $2.5 billion, and a Securities & Exchange Commission probe of its accounts. Mistrust of management has sparked talk that CEO Peter Dolan is on the way out.
Nevertheless, says Kaser, there's a bright side: New drugs in Bristol's pipeline, including those from recently acquired DuPont Pharmaceuticals, aren't yet reflected in the stock. The FDA may yet O.K. Erbitux. And a new anti-psychotic, Ablify, should do well. Also, with its cheap stock, Bristol could be bought -- by Novartis, says Kaser. Richard Evans of Sanford C. Bernstein says the 40%-undervalued pipeline "makes Bristol an attractive takeover candidate." It has more drugs in Phase II trials than the industry average, he notes, and more in Phase I than most of its peers. His 12-month price target is 32. Since new drugs are key to earnings growth, he says, "Bristol presents an opportunity for a buyer to grab revenue-generating products at a discount."
Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.