One Stock I Am Completely Avoiding

Bristol Myers Squibb (NYSE: BMY) stock has numerous positives. One of the world's largest pharmaceutical firms, it makes dozens of life-saving drugs and has more in the pipeline. It also pays a reasonable dividend. It won't close soon.  

Despite having recommended the stock to some investors and believing it could be a good investment in the future, I wouldn't touch it right now. Here's why  

This will cut deep. Bristol Myers Squibb stock is a no-go right now since its first-quarter results release surprised investors. In February, it estimated its non-GAAP diluted EPS for 2024 at $7.40, but it now estimates $0.70.  

It previously predicted a $250 million gain in other revenue or expenses. It now expects to lose $250 million, a $500 million change. Its effective tax rate, previously 17.5% for 2024, is now forecast to be 69%. Its recent purchases of biotechs Karuna Therapeutics and iRayzeBio caused all of these negative changes, which won't happen again.  

Investors may not have been warned strongly enough about these impacts. Bristol Myers also unveiled a strategic productivity plan that management believes will save $1.5 billion yearly by next year, so their attention is likely elsewhere. However, some pipeline programs and numerous people may be cut. The cost savings will fund new growth efforts.  

Companies often tout cost reduction after large acquisitions. Reduce redundancy compared to new assets. Unfortunately, shareholders have little to look forward to.  

No compelling reason to buy it now. Bristol Myers' pipeline and anticipated catalysts suggest slow growth. In the top line this year, management forecasts a "low single-digit [percentage point] increase". It plans to repay $10 billion in debt over two years.  

With over $51 billion in long-term debt, repaying it will be significant. But it won't be able to stop there, and its profits growth will be weak, leaving little resources for share buybacks and dividends. Deleveraging will cost more than growth, even with cost cuts, and may take the rest of the decade.

Such a situation makes it pointless to buy this company's shares today. With a payout ratio at 60%, it definitely won't need to stop paying shareholders, but an increase is unlikely. Unless you need a massively indebted, slow-growing stock, look elsewhere.  

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