Goldman, Sachs & Co analyst James Kelly trimmed his earnings estimate for Bristol-Myers Squibb and told investors to avoid the drugmaker's shares until management explains how it will compete with generic versions of its best-sellers.
What Kelly didn't do was cut his recommendation on stock in the maker of the cancer drug Taxol and the Glucophage diabetes medicines. He maintained Bristol-Myers, a Goldman Sachs banking client, as "market outperform" -- its version of a "buy."
Kelly's call represents an attempt to balance Goldman's investment-banking business with his own research, a common conflict that has undermined the authority of Wall Street analysis, some investors say.
"It may be they don't know what recommendation to use and the four-letter word `sell' doesn't exist anymore," said Donald Coxe, chairman and chief strategist of Harris Investment Management, which oversees US$16.5 billion and owns Bristol-Myers shares.
Goldman's Kelly said the company is likely to trim 2002 earnings projections at an investor meeting next Wednesday, and on Friday cut his own forecast by a nickel.
"We're telling investors to wait a few days because we want to see what Bristol says about the pipeline and whether that changes expectations," Kelly said.
Kelly said he maintained his rating on the stock because even assuming a worst-case scenario on 2002 earnings estimates the stock is still inexpensive.
Bristol-Myers shares have fallen 22 percent since Kelly initiated coverage on Nov. 29. During that time the Standard & Poor' S 500 Index fell 19 percent, and the Amex Pharmaceutical Index declined 13 percent.
The stock trades at about 21 times expected 2002 earnings, a 10 percent discount to the industry average, Kelly said. It slid 2.3 percent to US$53.04 on Friday.
Goldman Sachs's Kelly cut 2002 earnings per share estimates to US$2.55 from US$2.60.
The company is expected to earn US$2.62 a share, according to an average of analysts polled by Thomson Financial/First Call. Earnings-per-share projections could fall to as low as US$2.48, Kelly said.
Goldman, which took Bristol Myers public in 1969, has arranged the company's three bond sales since 1996 and advised on the sale of its Clairol hair-care unit to Procter & Gamble Co.
Kelly's concern revolves around the company's Glucophage line of diabetes medicines. The original top-selling drug may face competition from cheaper generics by year-end, and Bristol-Myers has been trying to switch patients to newer formulations of the drug for which there are no generic rivals.
As of mid-October, sales of the two new drugs represented about 38 percent of total Glucophage franchise sales, "a trend that needs to keep improving," Kelly said in a report.
Bristol-Myers's third-quarter profit rose less than 1 percent as generic drugs eroded sales of some the company's biggest- selling products, including Taxol and the anxiety medicine BuSpar.
"The story on Bristol-Myers is that earnings per share estimates have been coming down, and the share price reflects the below-trend growth,'' said Gene March, who runs Bristol-Myers shareholder Armada Equity Growth Fund for National City Investment Co. "It's a question of when you start to discount the stock properly."
Still, most analysts recommend investors buy more shares. There are currently 4 "strong buy" ratings, 11 "buy" ratings, and only 7 "hold" recommendations. There is also one "sell" recommendation.
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