But when looking at sales in the last few years and quarters we can dismiss this argument. First of all, Bayer issued about €6 billion in new bonds at the beginning of July. In August 2020, the Bayer-Elanco deal was finally closed and Bayer received about $5.3 billion in cash for its animal health division, which was sold to Elanco Animal Health (ELAN). These €10 billion in additional cash will be used for the settlement in the glyphosate trials in the United States (we will get to that) and the cash won’t therefore stay on the balance sheet for long. Problematic for Bayer are not only the high debt levels, but also the high amounts of goodwill, that result from the Monsanto acquisition. Additionally, we can also find €33,722 million in “other intangible assets”, which does not necessarily have to be a bad sign as Bayer certainly has intangible assets like patents, but the amount is quite high.
We should once again expect a stable performance with sales improving in the low single digits to €42-43 billion. While sales are expected to improve, the core EPS is expected to decline in the low single digits to about €6.10 to €6.30. Bayer might also profit from several megatrends that lead to sustained and long-lasting growth over one (or several) decades to come. One megatrend is the aging population with the number of people over 60 more than doubling (and these people will be more than 20% of total population). And especially the pharmaceutical segment will profit here as older people usually have a higher demand for pharmaceuticals.
Free cash flow also switched from a positive FCF of €1,140 million in the same quarter last year to a negative free cash flow of €473 million this quarter. And core earnings per share declined from €1.93 in the same quarter last year to €1.22 this quarter. As already expressed, the company unfortunately finds itself in unruly waters legally. Since its acquisition of Monsanto in 2018 it has faced countless lawsuits concerning the health risks of its glyphosate product Roundup. As also stated before, it has recently been winning a lot of these lawsuits and a lot of costs have already been made. Next to this, the war in Ukraine has exposed Europe’s industrial sector as heavenly dependent on Russian natural gas, driving up energy prices on the continent this year.
- Especially the three candidates Nubega, Vitrakvi and Finerenone as well as Verguvo should gain momentum and management is expecting the combined sales of these products to be around €4 billion annually until 2027.
- This is a hint, that people still trust Bayer und buy the products – despite the existence of cheaper generic products.
- And hence, it would take only about 3.5 years to repay the outstanding debt – or much longer.
- Next to this, the war in Ukraine has exposed Europe’s industrial sector as heavenly dependent on Russian natural gas, driving up energy prices on the continent this year.
There was a high demand in Nutritionals, rising 20% YoY, and Pain/Cardio saw encouraging growth of 17.4% YoY. Overall, while the company’s smallest segment, it grew the most in terms of percentages. And when looking at the growth potential over the next few decades, Bayer will most likely profit from several megatrends. Due to climate change and soil erosion, we will lose about 12 million ha of agricultural land and about 1/3 of the globally produced food annually. Considering these trends and dynamics, it will become extremely important to offer sustainable solutions in agriculture to unlock unseized market potential. The third segment, “Consumer Health” also had to report declining sales, but only 2.0% year-over-year decline to €1,466 million.
Bayer: Still A Strong Buy Despite Lowered Guidance
Bayer is certainly facing several problems at this point and the next few years will be tough. I didn’t buy a full position yet and will continue to add if the stock price should drop lower. While a further decline of Bayer’s stock price is not impossible, the risk-reward ratio seems to be favorable at this point and with a time horizon of at least 10 years, Bayer should be a great investment at this point.
- The next potential support levels would be the lows set during the financial crisis between €32 and €35.
- And in 2023 Bayer is now expecting €0 free cash flow – far away from the company’s target range, which is part of management’s compensation system.
- I didn’t buy a full position yet and will continue to add if the stock price should drop lower.
- And especially the pharmaceutical segment will profit here as older people usually have a higher demand for pharmaceuticals.
- If we assume that Bayer can generate only €5 billion in free cash flow and can’t ever grow again, the intrinsic value would be €50.92, making Bayer still a bit undervalued right now.
Summing up, I would still see Bayer’s balance sheet as problematic and one of the major issues speaking against an investment. On the other hand, debt levels are still manageable, and Bayer is not facing the risk of bankruptcy or severe liquidity issues. And Bayer, which was once a solid, well-performing trading quotes psychology business, seems to be in constant trouble since 2015 and not really fitting the description of a boring, well-run company. I have been bullish about Bayer for a long time, and I remain bullish, but the problems seem to continue, and Bayer does not seem to be able to return to its previous performance.
I thus arrive at a price target of €66 for Bayer, a €17 premium over the current stock price. In a more optimistic setting, the stock will recover to pre-Monsanto free cash flow levels quicker and will have a 5% growth rate on top. Then the intrinsic value of the stock would be just under €89, a 83% premium over the current stock price. In the figure below I’ve provided intrinsic value calculations with growth rates varying from 1% to 20%. It is a true value stock as it boasts a solid balance sheet, offering a P/B ratio of just 1.26.
Chemical giant’s shares are one of the worst performers in the Frankfurt stock exchange’s blue-chip DAX index
Mid-thirties DGI investor/senior analyst in private portfolio management/wealth management for a select number of clients. My aim is to only buy undervalued/fairly valued stocks and to be an authority on value investments as well as related topics. So far, we talked about the business – the positive and negative aspects of Bayer and the industry the company is operating in. But we all know we can’t just look at the business in isolation – we also must include the price we have to pay for a business in our analysis. And even if Bayer should continue to struggle and not be able to grow again it can be a great investment when it is trading for a lower price.
In the end, it’s all about what you’re paying for what you’re getting – and I will buy anything if I get to decide, or if I get to pay the price I want. Now, €50/share is higher than it once was, but it’s still a dirt-cheap valuation where Bayer yields nearly 4% even with a very conservative yield. Rather, it confirms the positive expectations we can have for the company at this time and going forward for the next year and more.
But Eylea will lose exclusivity between 2020 and 2025 in key markets, which will lead to declining sales although management is expecting moderate generalization dynamics as it is a biological product. Additionally, we can use a discounted cash flow analysis to determine an intrinsic value for Bayer. And for a DCF calculation, we need to make some assumptions about free cash flow in the years to come.
Although Bill Anderson did not have a good start as CEO of Bayer with his first quarterly results, we can still be optimistic. And while I don’t want to bash the former CEO, many investors see Baumann as reason for the declining stock price. And one can’t deny that since 2015 Bayer was constantly struggling and mistakes were made. Among the three different segments, it was especially “Crop Sciences” that contributed to the declining sales. In the second quarter, sales dropped 23.8% year-over-year to only €4,924 million. And here especially volume declined 15.1% year-over-year, which is not a good sign.
And as I already expected in my last article, Bayer will propose a dividend of €2.00 at the Annual Shareholder Meeting on April 27, 2021. When taking the core EPS of Bayer, we get a payout ratio of 31% and is therefore at the lower end of the company’s payout range, which is between 30% and 40%. A more realistic assumption would be to assume €0 free cash flow in 2023 but again €5 billion in fiscal 2024 and 5% growth for the following years. This leads to an intrinsic value of €92.54 for Bayer and in my opinion, this is a realistic intrinsic value as I think Bayer could double in value and the stock would still not be overvalued. Clearly, the market hasn’t reacted well to Bayer’s news of an uncertain future in their agricultural division, nor their part in the Roundup debate. Bayer has invested heavily in crop science, Monsanto in particular, and 2020’s troubles haven’t been good to them.
For “Consumer Health” the negative currency effects had a huge negative impact on the business (-7.0% YoY) and volume also declined 4.4% YoY. After Bayer reported great results for fiscal 2022 – I have written about the results in my last article – second quarter results -Q were a disappointment once again. Sales declined 13.8% year-over-year from €12,819 million in Q2/22 to €11,044 million in Q2/23. And although currency tailwinds had a negative impact, FX- and portfolio-adjusted sales declined 8.2% year-over-year.
Bayer is expecting 50% more food and feed required to meet the growing demand and the innovations of crop sciences will be needed. Bayer is expecting 17% harvest losses from climate change and to keep up with demand for food, crop sciences products will be needed even more. And despite lawsuits and immense negative press for Bayer and Monsanto, the sales for the crop sciences segment are also improving.
MarketWatch
When comparing the total debt to the shareholder’s equity we get a D/E ratio of 1.26. Additionally, we can compare total debt to the operating income the business can generate. But here it gets difficult to decide what metric we should use and depending on the metric used as denominator, we get extremely different ratios. When looking at fiscal 2022 numbers, EBITDA was as high as €13,513 million, while EBIT before special items was €9,257 million and EBIT was only €7,012 million. And when looking at the same numbers in previous years or the last four quarters, we see much lower numbers.
Although it is almost impossible to make predictions over several decades as a lot can happen, assuming that Bayer can grow with a solid pace in the next few decades due to the above-mentioned megatrends seems reasonable. Today, the stock opened at $13.96 per share, a steep drop from the previous close of $14.95. In June, the court decided that Monsanto’s infamous Roundup weed killer does indeed cause non-Hodgkin’s lymphoma. Because Bayer took over the company, they became responsible for the $10 million settlement, some of which is allocated for potential (yet likely) future cases. Get stock recommendations, portfolio guidance, and more from The Motley Fool’s premium services. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
Is Bayer a Fortune 500 company?
Companies to offer and trade their shares conveniently and efficiently in the U.S. equity markets. In the United States, Bayer stock has been traded under a OTC Level l ADR Program since September 27, 2007. The company is also expecting slightly lower debt than previously, about €500M. In my previous articles, I pointed to some of the fundamental reasons for considering Bayer a great company.
Stockchase Insights
When looking at the first half of 2023, the picture is still a little better with sales declining 11% year-over-year. But EBITDA in H1/23 already declined 26% compared to the same timeframe last year. Looking at the sales in more detail, we see the top line declining due to several reasons. As already mentioned above, currency effects had a negative impact and led to a 4.3% decline YoY. Additionally, prices also declined 0.8% YoY and especially volume declined 7.4% being therefore the biggest negative contributor to declining sales. Bayer also introduced an additional savings program and is expecting to save more than €1.5 billion annually as of 2024 on top of annual earnings contributions of €2.6 billion (which were announced in November 2018).
And Bayer also should have growth potential as the three business segments address huge markets. Especially in the Crop Sciences, with a TAM of €100 billion, Bayer is clear market leader and should be able to use its dominant position in the years to come and maybe be able to gain market shares. Consumer Health has a total addressable market of €150 billion and Pharmaceuticals has a huge addressable market of €1.4 trillion which is offering growth potential (at least in theory). For the pharmaceutical industry we also must point out that several companies are battling for market shares.
Precautions have though been made and have even driven LNG prices into negative territory. This, however, remains a risk, as the continent has to adapt from a Russian gas dependent economy to an LNG fueled economy. Germany’s industry, though, has been very competitive, with Bayer being one of the nation’s strongest and largest industrial powerhouses, having countless patents and significant market power. Due to its innovative character and tons of IP it has a large moat in a lot of the sectors it operates in. Sales grew by 14.3% YoY, meaning that Bayer saw a continuing positive sales momentum, to nearly €10B for the quarter.
This is the company’s mission, and over time, the company has been delivering well on these. I hoped that by now Bayer would have settled its ongoing glyphosate litigations in the United States or would at least be close to reaching a settlement. Nevertheless, with the settlement and the stock being deeply undervalued in my opinion, I consider a further decline to the low 30s less likely at this point. And the stock also bounced off the black trendline for a second time – and that can be interpreted as successful pullback, which is bullish.
If you however want to grow your money conservatively, safely, and harvest well-covered dividends while doing so, and your timeframe is 5-30 years, then I might be for you. If the company doesn’t go into overvaluation, but hovers within a fair value, or goes back down to undervaluation, I buy more as time allows. Despite good trends and results, company litigation and risks are still very clear in the company’s overall valuation profile. And as Bayer recently reported rather bearish second quarter results, I start with the negative aspects about Bayer. Almost all sectors have been negatively impacted by the coronavirus pandemic, but Bayer says the agricultural industry has taken a bigger hit than they presumed. With their already struggling Monsanto acquisition (the Bayer Crop Science Division), minimized demand for biofuel has made their progress weak.
If the company goes well beyond normalization and goes into overvaluation, I harvest gains and rotate my position into other undervalued stocks, repeating #1. Bayer currently trades at an average P/E of 8.17X for the ADR, which is a massive overall discount to its usual 14X. The major risk factor in investing in Bayer, as I would see it, is the Roundup litigation as well as the company’s pharma portfolio https://bigbostrade.com/ and how current or appealing the company can keep this going forward. As a company, Bayer seeks to target very disciplined capital allocation, with a focus on deleveraging and targeting an A-credit rating, dividend payouts of 30-40%, and growth through external factors with bolt-on M&As. There are several key reasons why Bayer, as a company, can be expected to continue to grow and deliver here.
Stockchase rating for Bayer AG is calculated according to the stock experts’ signals. A high score means experts mostly recommend to buy the stock while a low score means experts mostly recommend to sell the stock. In the first six months of the year, the cancer medicine had sales of $1.7 billion, down roughly 17% year over year. Last year, Stelara, Imbruvica, and Xarelto combined made up almost 17% of Johnson & Johnson’s total sales.
This is a hint, that people still trust Bayer und buy the products – despite the existence of cheaper generic products. Or when looking at the pharmaceutical segment, sales could increase from €13,512 million in 2014 to €17,962 million in 2019, which is resulting in an annual growth rate of 5.86%. In 2019, growth was driven by volume (+6%), which is a good sign, that more people were buying products from Bayer. We also have to mention, that sales in the second quarter declined – but in my opinion due to COVID1-19 (we will get to that) and not because of Bayer’s reputation. Particular highlights included substantial volume and price increases in Crop Sciences, with Corn seed being particularly high, and overall license revenues for the company’s products improving.