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SIVY ON STOCKS from money.com
June 1, 2001 *****************[ A D V E R T I S E M E N T ]**************** Jump-start a child's College Fund with MONEY's $5000 QUICK CASH Sweepstakes! It's easy - just click the link below for your chance to enter to win $5000 Cash! Plus while you're at money.com, jumpstart your investments with a FREE Trial issue of MONEY! Click Here: http://www.money.com/scholarship ************************************************************** In need of a new image Bristol-Myers is evolving from a consumer-products company to a drug giant. But investors still haven't caught on. By Michael Sivy When you've been plodding along your whole life, it's hard to change your image -- that's the challenge Bristol-Myers Squibb [BMY] now faces. Most investors still regard the company as a slow-growth consumer-products business defined by brand names such as Clairol and Excedrin. But they're missing something important. Over the past few years, Bristol-Myers has been repositioning itself as one of the nation's largest pharmaceutical firms. And when investors catch on, the stock could receive a valuation at least 30 percent above current levels. I last recommended Bristol-Myers in September at $53.50 a share. The stock has always received lower valuations than Pfizer and Merck because it gets less than three-quarters of its sales from pharmaceuticals. But Bristol-Myers had been transforming itself, and for a while, it looked as if it was getting more respect. By January, the share price had risen nearly 40 percent to top $74. But since then, the shares have given back almost all their gains. One reason is that the company is posting flat earnings growth this year. Moreover, several of the company's top-selling drugs, such as Glucophage for diabetes, are facing competition from generics, which will force lower prices and eat into market share. Even so, the long-term outlook for the stock has actually improved. On May 21, the company announced that it would sell Clairol to Procter & Gamble for $4.95 billion. That sale will reduce the percentage of Bristol-Myers' business that comes from consumer products. Even more important, when the deal closes, Bristol-Myers will have $6 billion in cash -- four times its total debt outstanding. That cash hoard can be used to make acquisitions. Pharmaceutical giants are like movie studios -- they're basically immense distribution systems looking for product. All Bristol-Myers has to do is revamp its product pipeline with the acquisition of boutique drug companies or biotech firms, and the stock will suddenly look a whole lot flashier. Since it won't be hard for Bristol-Myers to complete its transformation into a drug powerhouse, without even hurting its balance sheet, you'd think that investors would be giving the stock more of a premium. At $56.25, Bristol-Myers trades at 24 times this year's estimated earnings. That's certainly a fair valuation for a stock with a 12 percent core growth rate and a 2 percent dividend yield. But if you look not at what Bristol-Myers has been, but what it so easily could become, you'd think a substantially higher P/E should be in order. ### Post your comments on Michael's column at: http://www.money.com/depts/investing/sivy/index.html To subscribe or unsubscribe to Sivy on Stocks, go to: http://www.money.com/email/ ----------------------------------------------------------- CONTACT THE BIGGEST COMPANIES IN THE WORLD! Over 5,000 contact names in the OFFICIAL FORTUNE Databases. DOWNLOAD THEM NOW! http://www.fortune.com/sitelets/datastore/index.html?mn01 ----------------------------------------------------------- * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * Special Internet Offer!!! Sign up for a RISK-FREE issue of MONEY MAGAZINE at http://www.money.com/subscribe2 Or if you prefer call our toll-free number 1-800-544-4594 * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * We may, from time to time, contact you with offers for Time Inc. products and services which we think may be of interest to you. If you would prefer us not to contact you in this manner, AND YOU DID NOT INDICATE THIS PREFERENCE AT THE TIME YOU SIGNED UP for the Sivy on Stocks online newsletter or any other Time Inc. online newsletters, please let us know by sending us an e-mail at <no_solicit@money.com<. Additionally, from time to time we may provide your e-mail address to carefully chosen companies whose offers we think may be of interest to you. If you would prefer us not use your e-mail address in this manner, AND YOU DID NOT INDICATE THIS PREFERENCE AT THE TIME YOU SIGNED UP for the Sivy on Stocks online newsletter or any other Time Inc. online newsletter, please let us know by e-mailing us at <no_transfer@money.com<.
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