In each of the next two rounds, Medicare will select another 15 drugs, and in the fourth, it will pick 20. So by 2029, the list of drugs for which the government has negotiated lower prices will have grown from 10 to 60. In sum, none of the three of the medicines targeted by Medicare for price negotiations were going to be part of the drugmaker’s growth strategy regardless. MON Overview Monsanto Company stock price live 127.95, this page displays NYSE MON stock exchange data.

It is important the Bayer stays innovative to introduce new products to compensate the loss of glyphosate sales – if it should happen. In my opinion, we can show from past sales numbers that people don’t stop using glyphosate and herbicides – despite the negative press the topic received in the last few years. But if https://bigbostrade.com/ consumers won’t stop using the product, governments can still modify the terms of usage of the product or might even ban the product entirely. In some countries the individual use of glyphosate is already banned (like in Belgium) and other countries (like Germany) want to ban the usage in private gardens in 2020.

Growth Potential

And although this is much better than the loss of €9.72 per share in the second quarter of fiscal 2020, these are not numbers we like to see. Additionally, we can look at the adjusted “Core EPS” which increased slightly from €1.59 in Q2/20 to €1.61 in Q2/21. And free cash flow decreased from €1,402 million in the same quarter last year to €1,152 million – a decrease of 17.8% YoY. And as Bayer recently disappointed again with its second quarter results, I will look at the positive and negative aspects once again. It is not only claimed, that Bayer overpaid for Monsanto, many also assume it will go down in history as one of the worst acquisitions ever.

Since its highs of €144, Bayer already declined 70%, which seems pretty steep, but that by itself is no reason for a turnaround and it is also possible, that Bayer will decline further. The next potential support levels would be the lows set during the financial crisis between €32 and €35. Aside from looking at the chart, we also have to point out, that Bayer is trading for very low multiples. Assuming a core EPS of around €6.50, the P/E ratio would be between 7 and 8, which is extremely cheap for a high-quality, recession proof business with a wide economic moat. Aside from simple valuation metrics like the price-earnings ratio, we can also use a discounted cash flow calculation to determine an intrinsic value for Bayer. In my last article I stated that Bayer should be worth about €80 per share, and I still think this is a fair value for the stock.

Bayer – Cheap Again, Plenty Of Volatility, But Still A ‘Buy’

But when turning away from legal aspects and litigations and rather focus on the fundamental business, we actually see solid second-quarter results. Net sales in the second quarter increased from €10,054 million in Q2/20 to €10,854 million in Q2/21 – reflecting a reported sales growth of 8.0% YoY. When using portfolio and FX adjusted numbers, the growth would even have been 12.9% YoY.

• And without doubt, this would be a steep decline, but after the stock lost already €100 in value I don’t care much if the stock will lose additional €10 in value (at least as a long-term oriented investor).
• And although currency tailwinds had a negative impact, FX- and portfolio-adjusted sales declined 8.2% year-over-year.
• Stockchase rating for Bayer AG is calculated according to the stock experts’ signals.
• And Bayer – under the new CEO – should try to become the boring but well-run and well-performing business again it was before 2015.

Gains were also strong in EU, Middle East, and Africa, due to increased pricing in glyphosate-based products and improved volumes. In pharmaceuticals segment, recovery from COVID-19 continued to deliver growth in the company’s sales. Anticoagulant sales grew 4.3%, and sales of Eylea delivered growth that offset price declines in China. The company actually saw declining EBITDA in the segment, but this was due to launch-related marketing costs, R&D costs, and development expenses for sub-segments like gene therapy. When looking at the expected core earnings per share for fiscal 2021 (midpoint of guidance is €6.50), we get a P/E ratio of 7.3, which seems extremely cheap. And despite the legal challenges – a valuation multiple in the single digits for a company that has an economic moat around its business seems very cheap.

First, the healthcare giant has a large and diversified portfolio of medicines. Its single most lucrative drug in 2022 was Stelara, which accounted for 10.2% of its total sales. Johnson & Johnson had more than 10 products that generated over $1 billion in sales each last year.

From a technical point of view, Bayer is still in a downtrend with lower highs and lower lows. Right now, it seems like the stock is forming a double bottom, but that by itself is always possible in a downtrend when the stock price comes close to the previous low. When looking at the company’s bond and loan maturity profile it probably will be tough in the next few years, but it should be manageable. When looking at the last five years, Bayer generated an average EBIT of €5.1 billion annually and the average free cash flow was €4,740 million. But in 2021 and 2024, Bayer has to repay more than €5 billion in outstanding debt, which will definitely be a challenge. When looking at the past 15 years, Bayer often had higher debt levels and a higher leverage and always managed to deleverage, which should make us confident.

In this section, we will look at the problems that are all related to the Monsanto acquisition and we start with the high debt levels. Of course, we sometimes have to assume growth will slow down, but the growth rates over the last few decades are often a good starting point for growth assumptions in the years to come. When looking at EBITDA before special items (an adjusted metric) it declined from €3,349 million in the same quarter last year to €2,527 million this quarter – resulting in 24.5% year-over-year decline. And EBIT “switched” even from a positive €169 million in Q2/22 to a loss of €956 million in Q2/23.

Solid Results

For the full year 2019, crop sciences could increase its sales by 39% (mostly due to acquisitions) but the FX and portfolio adjusted growth was still 1.4% and herbicides grew 1.8% (once again FX and portfolio adjusted). In the first half of 2020, crop science could increase sales still by 3.6% despite the challenging environment and sales for herbicides also increased 4.1% (FX adjusted). Although it might seem idiotic after more than 5 years of declining stock prices, I remain confident that Bayer can return to its old strength.

Germany also wants to ban glyphosate entirely until 2023 or 2024 (a good overview can be found here). Buying undervalued – even if that undervaluation is slight, and not mind-numbingly massive – companies at a discount, allowing them to normalize over time and harvesting capital gains and dividends in the meantime. When things reverse, and when the litigations settle, this business will no doubt go back up. Now, it’s impossible to say exactly when this will be, but the company’s current yield and the current price give us, in my opinion, quite an excellent basis for investing in Bayer.

• 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.
• But when looking at sales in the last few years and quarters we can dismiss this argument.
• For 2021, growth and cash flow generation are expected to be lower than planned and can only be partially compensated by further savings measures.
• When looking at the first half of 2023, the picture is still a little better with sales declining 11% year-over-year.
• 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.
• In each of the next two rounds, Medicare will select another 15 drugs, and in the fourth, it will pick 20.

Growth rates fluctuated heavy in the last decades and when looking at the 10-year EPS CAGR, we see numbers as high as 24% in the 1990s or almost 18% in 2014. When looking at a long-term average, we get a CAGR of 4.46% for earnings per share between 1980 and 2019, which seems to be in line with management’s growth expectations for the years to come. In its previous guidance, management was expecting debt to decline to a range of €32 billion to €33 billion at the end of fiscal 2023, but now management is seeing debt at around €36 billion. But not only the chart is improving but Bayer also reported solid fiscal 2021 results at the beginning of March 2022.

The company saw core earnings increase nearly 30%, and Bayer also came with a revised outlook for its business, coming in at €44B in sales for the full year, with a growth of about 7% YoY. Core EPS is expected to come in €0.1 higher than previous guidance, and FCF is now expected to come in at low negative numbers, as opposed to mid/higher negative numbers. The reason for the negatives here insurance of stock is, of course, the glyphosate reservations in terms of the litigation. For 2021, growth and cash flow generation are expected to be lower than planned and can only be partially compensated by further savings measures. The company now expects 2021 sales to come in at around the 2020 levels, with 2021 core earnings per share slightly below 2020 levels, based on constant exchange rates.

By simply following these trends, investors can generate returns well above those of the overall market – and it’s not really that advanced in any way – it just requires patience and perseverance. The ability to clearly stick to your own opinion that “this is worth more than the market is currently valuing it”. And the chart as well as the fundamentals of Bayer should make us rather bullish. Let’s start with a recent bullish argument – or a piece of information that can be rather bullish.

It all has to do with the latest Bayer stock news

With the glyphosate litigations and the settlement hopefully being history right now, Bayer can focus on growing its business again, and when looking at the mid-term growth expectations, we see positive signs. All three segments are expected to grow in the low-to-mid single digits in the next few years. Until 2024, management is expecting crop sciences as well as consumer health to grow between 3% and 5% annually. The pharmaceutical segment is also expected to grow 3% to 5% annually until 2023, but for 2024, management is expecting a low-to-mid single-digit decline. Going a little more in-depth and quantifying my investment thesis, I’ve performed a DCF analysis. For my calculation I will use Bayer’s total free cash flow guidance for the fiscal year of 2022 at €3 billion.

And these numbers are FX-adjusted – reported revenue is expected to be between €46.8 billion and €47.8 billion. The core EPS – another adjusted metric – is now expected to be between €6.20 and €6.40 – one Euro lower than in the previous guidance. And finally, free cash flow is expected to be zero – compared to €3 billion in a previous guidance. Bayer Aktiengesellschaft – Hold Its Value Score of A indicates it would be a good pick for value investors. The financial health and growth prospects of BAYRY, demonstrate its potential to outperform the market. This is resulting in total debt of €41,319 million and compared to the equity attributable to Bayer AG stockholder (which was €35,704 million) we get a D/E ratio of 1.16.

Not only is the stock oversold at this point and could form a double bottom with the lows of March 2020. We also have two trendlines supporting the stock price at this point – the green dotted trendline and the orange dotted trendline in the chart. At least in Germany, the discussion about banning glyphosate is ongoing for years and despite the discussion it is still allowed in Germany. Hence, I would not be too sure that it will really be banned in a few years from now. But in case of Bayer (and as investor) we have to think about the possibility of a glyphosate ban and that Bayer might lose a bigger part of the €5 billion in annual revenue the product is generating right now.

Sales increased from €41,400 million to €44,081 million – this resulted in a solid 6.5% year-over-year growth (FX and price adjusted sales increased even 8.9% YoY). The Board of Management intends to leave Bayer’s dividend policy, which delivers 30 to 40 percent of core earnings per share to stockholders each year, in place. Payouts in the coming years are expected at the lower end of this corridor rather than at the upper end in previous years.

Bayer AG: Turnaround Value Stock

And it is currently awaiting an approval decision from the Food and Drug Administration for milvexian, an anticoagulant it developed with Bristol Myers Squibb. The company has recorded steady sales and profits for decades thanks to its strong underlying business and innovative capabilities. We can expect a settlement and payments being probably between €10 billion and €12 billion. Bayer also wants to settle possible future litigations to end the topic once and for all, but judge Chhabria raised concerns about this part of the settlement.

The company has also been winning most of its lawsuits recently and has already made significant legal costs. My discounted free cash flow analysis has shown that the intrinsic value of Bayer is around €66 if it solves its lawsuits in FY2032 and has a very conservative growth rate of 1%. Long-term debt levels are however high, resulting from the acquisition of Monsanto in 2018, at €39.4 billion. Taking into account Bayer’s decent cash position and cash flow, they nonetheless should not pose any acute problems. Acute problems do however stem from Europe’s macroeconomic situation, but the continent is quickly shifting to LNG and seems to be on the right track. In my opinion the pros definitely outweigh the cons and the company therefore receives a ‘Buy’ rating.