And core earnings per share declined from €1.93 in the same quarter last year to €1.22 this quarter. The growing and aging population will lead to higher demand for food and to produce these amounts of food, Bayer’s crop science products are necessary. Until 2050, population is expected to grow by 2.2 billion people and about 50% more food is required to meet the demand. A second growth driver might be Nubeqa, which was able to double sales in 2022 and reported €467 million in revenue in fiscal 2022. In Q4/22, sales increased 132% compared to the same quarter last year and quarter-over-quarter, revenue increased 24%. While the guidance was rather underwhelming, investors might be pleased with the dividend raise.
- MON Overview Monsanto Company stock price live 127.95, this page displays NYSE MON stock exchange data.
- In Q4/22, sales increased 132% compared to the same quarter last year and quarter-over-quarter, revenue increased 24%.
- 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.
- With immobile stock prices and a hangover of legal issues, these CEOs might be glad Wall Street doesn’t operate like a democracy.
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. When ignoring the legal issues, Bayer could generate at least €5 billion in free cash flow in the last few years. 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.
Valuation
And the stock also bounced off the black trendline for a second time – and that can be interpreted as successful pullback, which is bullish. In my last article, I speculated that the stock could potentially drop to the low 30s – the low during the Financial Crisis. And when looking at the chart, types of financial instrument there are not so many reasons to be extremely bullish. The stock is still in a downtrend and trading below the red declining trendlines. 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.
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- 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.
- And even when looking at the last five years where Bayer might not have performed at its highest levels, we still see sales increasing with a CAGR of 8.40% since 2018 and core earnings per share increased with a CAGR of 9.12%.
- 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.
- Let’s start with a recent bullish argument – or a piece of information that can be rather bullish.
- The ability to clearly stick to your own opinion that “this is worth more than the market is currently valuing it”.
And although Bayer is not offering specific numbers, management seems to be quite optimistic about the growth potential of its pharmaceutical segment – especially in the years following 2024. Sales grew by 14.3% YoY, meaning that Bayer saw a continuing positive sales momentum, to nearly €10B for the quarter. In terms of segments, Crop Sciences reported large increases in sales and earnings, and the other two segments of pharma and consumer health also posted very strong sales numbers.
While Bayer was clearly struggling in the last few years, I think we can be a little more optimistic and assume growth in the mid-single digits in the years to come. When calculating with 4% growth following fiscal 2024, we get an intrinsic value of €79.89 and when assuming 5% growth instead, the intrinsic value for Bayer is €95.31. And even when looking at the last five years where Bayer might not have performed at its highest levels, we still see sales increasing with a CAGR of 8.40% since 2018 and core earnings per share increased with a CAGR of 9.12%. Growth was broad based across all regions and categories with demand being especially strong in Allergy & Cold (22% YoY growth). And while growth assumptions for 2023 are rather moderate for Bayer, the consumer health segment is expecting sales to grow about 5% in fiscal 2023 and EBITDA margin also to improve slightly.
Elancos sales boosted by Bayer Animal health deal
And Bayer is therefore trading about 1/3 below its intrinsic value, which is leaving enough margin of safety to counterbalance any errors we might have made in our calculation. Today, the stock opened at $13.96 per share, a steep drop from the previous close of $14.95. 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.
Analysts Offer Insights on Healthcare Companies: TG Therapeutics (TGTX), Bayer (OtherBAYRY) and United Therapeutics (UTHR)
The German company expects core earnings per share of about 7.30 euros on a currency-adjusted basis, up from the previous target of 7 euros, it said in a statement Thursday. 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. Graficas de trading Not only were second quarter results disappointing, but Bayer also had to lower its guidance for the full year 2023. Instead of $51 billion to $52 billion in sales, management is now expecting only €48.5 billion to €49.5 billion in 2023. And these numbers are FX-adjusted – reported revenue is expected to be between €46.8 billion and €47.8 billion.
Is Bayer Crop Science a good investment?
And not only the pharma segment will contribute to growth in the years to come. Management is also expecting the Crop Science segment to contribute to growth with sales growing between 3% and 5% in the next few years and with EBITDA margin also improving in the years to come, the bottom-line growth might be even higher. The German pharmaceutical and chemical conglomerate said net profit for the period fell by around 78% to 308 million euros ($374.9 million) from EUR1… The man reason for the low free cash flow are included expectations for settlement payouts between €2 billion and €3 billion, but these negative impacts were already included in the previous guidance. 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.
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.
And in my opinion an annual growth rate of 4-5% for the bottom line in the years to come is certainly realistic and a number we use in a discounted cash flow analysis (we will come back to this). Bayer AG raised its forecast for the year but the stock fell as the company announced a provision for the environmental damage caused by some older Monsanto chemicals. I mentioned above that I was always bullish about Bayer in the last few years – and I still am. Therefore, you are right to expect some bullish arguments about Bayer that off-set the bearish arguments made above. This hefty investment has yet to prove itself, and not just with the most recent alarm bells.
As long-term investors, the performance over the next few years should not be ignored, but it becomes subordinate to the long-term growth expectations. First of all, Bayer is operating in three markets with a gigantic market size (€100 billion for crop science, €140 billion for consumer health, and €880 billion for pharmaceuticals). And while Bayer is a leader in key therapeutics areas in the pharma business, it is a clear market leader in the crop science business. With the reached settlement, Bayer can now start to look forward, and after it reported more or less stable numbers in fiscal 2020, the guidance for 2021 is quite similar. We should once again expect a stable performance with sales improving in the low single digits to €42-43 billion.
The company is a leader in several important fields and has well-diversified operations in the fields where they are active. Bayer AG on Wednesday reported a rise in net profit despite slightly lower sales and backed its outlook for the year. The German pharmaceutical and chemical conglomerate posted net profit of 2.09 billion euros ($2.54 billi… Although it is almost impossible to make predictions over several decades Pitch the Perfect Investment 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. 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.
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. 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. 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.
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. 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 is, of course, the glyphosate reservations in terms of the litigation.
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. 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. 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.
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. The target corridor for free cash flow is between €4,750 million and €5,250 million, but Bayer missed its target for several years in a row. 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 is not only expecting top-line growth in the next few years, but also see core EPS improving to €7.00 to €7.50, and for fiscal 2024, Bayer is expecting free cash flow to be around €5 billion again.
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