Bayer: Disappointing Outlook Doesn't Change The Deep Value Thesis

Trending 1 year ago

Bayer Buys Monsanto

Sean Gallup


Bayer (OTCPK:BAYRY) closed FY 2022 reporting coagulated Q4 results, beating expert statement estimates pinch regards to some gross and earnings. However, nan 2023 outlook pressured sentiment successful nan trading convention pursuing nan results announcement, pinch Bayer banal trading little by arsenic overmuch arsenic 5% (Xetra listing reference).

Investors should consider, however, that Bayer's 2023 profitability guidance is only marginally beneath 2022 metrics. And pinch estimated FY 2023 net of astir EUR 7.4 per share, investors proceed to undervalue Bayer's net power, successful my opinion. That said, though I somewhat set my EPS estimates done 2025, I proceed to cipher much than 100% upside for nan German life sciences conglomerate. Bayer remains a 'Strong Buy'.

Strong Q4 and 2022 Results

Bayer reported coagulated Q4 results, comfortably topping statement estimates pinch regards to some income and earnings. During the period from September to extremity of December, Bayer generated group revenues of EUR 12 billion, an summation of adjacent to 8% arsenic compared to nan aforesaid twelvemonth prior, and astir EUR 450 cardinal supra expert statement estimates (according to information collected by Bloomberg). Similarly, Bayer's profitability expanded attractively: for nan respective period, Bayer's EBITDA earlier typical items grew to EUR 2.46 billion, and EPS accrued to EUR 1.35.

Bayer Q4 and FY 2022 reporting - results

Bayer Q4 and FY 2022 reporting

For nan FY 2022, Bayer group income summation by astir 8.7% connected a FX adjusted bases, to EUR 50.74 billion. With regards to profitability, EBITDA earlier typical items jumped 20.9%, to EUR 13.51 billion, and net per stock accrued 22% to EUR 7.94 respectively.

Bayer Q4 and FY 2022 reporting - results

Bayer Q4 and FY 2022 reporting

Anchored connected beardown rate travel and an improving equilibrium expanse -- Free rate travel successful FY 2022 accrued to EUR 3.11 and nett financial indebtedness fell to EUR 31.81 cardinal -- Bayer guidance opened nan chat for higher shareholder payouts, proposing to summation dividends by 20% arsenic compared to 2021, to EUR 2.4/share.

All Operating Units Perform

Notably, Bayer's beardown FY 2022 results were supported by each of nan group's operating segments.

The Crop Science section recorded beardown gross maturation and accumulated grounds EBITDA. As compared to 2021, income accrued 25% YoY, to EUR 26.2 cardinal and EBITDA surged by 46% YoY, to EUR 6.9 billion.

Bayer Q4 and FY 2022 reporting - AG business

Bayer Q4 and FY 2022 reporting

The Pharmaceuticals portion expanded topline by 5% and EBITDA by 2%, increasing to EUR 19.3 cardinal and EUR 5.9 cardinal respectively.

Bayer Q4 and FY 2022 reporting - Pharma business

Bayer Q4 and FY 2022 reporting

The Consumer Health portion recorded a 15% YoY jump successful nett sales, increasing to EUR 6.1 billion, while EBITDA besides expanded by astir 15%, to EUR 1.4 billion.

Bayer Q4 and FY 2022 reporting - Consumer wellness business

Bayer Q4 and FY 2022 reporting

Looking Beyond The Disappointing 2023 Outlook

Bayer guidance guided for a somewhat muted 2023 profitability (emphasis added):

Following 2 consecutive years of precocious single-digit percent maturation rates, we expect our business to stay astatine a precocious level and turn by 2 to 3 percent successful 2023 connected a currency- and portfolio-adjusted basis

The institution anticipates little prices for cultivation herbicides arsenic good arsenic for immoderate of its established pharmaceutical products. Projected income maturation successful nan different parts of nan portfolio and from caller products are expected to person a affirmative impact. As regards net successful 2023, growth-driven separator contributions and affirmative effects from ongoing ratio programs will not beryllium capable to offset nan anticipated diminution successful prices arsenic good arsenic precocious inflation-driven costs increases, which are expected to continue.

In financial terms, Bayer expects to make revenues of betwixt EUR 51 cardinal to EUR 52 billion. EBITDA earlier typical items is expected betwixt EUR 12.5 cardinal to EUR 13.0 cardinal net per stock will apt autumn successful nan scope of EUR 7.20 to EUR 7.40.

With respect to nan divisions, Bayer expects its Crop Science portion to materialize income maturation of astir 3%, while its Pharma section is projected to turn by astir 1%, and Consumer Health is anticipated to turn by astir 5%.

Although nan outlook is somewhat disappointing, surely beneath respective FY 2022 maturation and profitability targets, investors should see that pinch EPS estimated successful nan scope of EUR 7.2 to EUR 7.4, Bayer continues to waste and acquisition exceptionally cheap. In fact, Bayer's FWD P/E of beneath x8 implies that investors whitethorn gain an equity output of adjacent to 13%. Such a valuation and return respectively would only beryllium justified if Bayer would beryllium operating successful structurally challenged market. But pinch nan agriculture request tailwind, arsenic good arsenic expanding wellness consciousness crossed nan world, specified an presumption a declining marketplace for Bayer - is acold from rational.

Bayer Q4 and FY 2022 reporting - 2023 outlook

Bayer Q4 and FY 2022 reporting

Valuation Update

Accounting for Bayer's somewhat 'disappointing 2023 outlook', I update my EPS expectations for Bayer done 2025: I now estimate that Bayer's EPS successful 2023 will apt autumn location betwixt $2.2 and $2.4, arsenic compared to $2.45 prior. Moreover, I besides set my EPS expectations for 2024 and 2025, to $2.6 and $2.85, respectively.

I proceed to anchor connected a 3.5% terminal maturation complaint (one percent constituent higher than estimated nominal world GDP growth), arsenic good arsenic connected a 9% costs of equity.

Given nan EPS upgrades arsenic highlighted below, I now cipher a adjacent implied stock value of $35.58.

Bayer valuation

Author's Estimates and Calculations

Below is besides nan updated sensitivity table.

Bayer valuation sensitivity table

Author's Estimates and Calculations


With regards to risk, I continue to spot nan Monsanto litigation arsenic nan awesome consequence factor:

... nan awesome headwind for nan institution is and will apt stay nan Monsanto litigation. While nan lawsuits should beryllium manageable, and Bayer has group speech capable costs for imaginable liabilities, nan costs are still open-ended and uncertainty persists. However, 1 could reason that Monsanto is nan opportunity, not nan risk, arsenic without nan litigation investors would ne'er beryllium capable to bargain Bayer astatine specified a inexpensive valuation. At this constituent I spot nan risk/reward skewed to nan upside.


Bayer delivered beardown FY 2022 results, beating expert statement estimates pinch regards to some topline and earnings. However, markets punished nan banal little pursuing nan net release, owed to a perceived anemic 2023 outlook. But investors should see that EPS projections of betwixt EUR 7.2 and EUR 7.4 connote a continuation of beardown demand. And Bayer's FWD P/E of x8 would only beryllium justified if either Bayer's marketplace would beryllium structurally pressured, aliases Bayer's competitory spot would diminish -- some assumptions are acold from reasonable. That said, reflecting connected beardown FY 2022 results, ongoing structural tailwinds, arsenic good arsenic a ace inexpensive valuation, I americium assured to reiterate a bullish recommendation.

Editor's Note: This article discusses 1 aliases much securities that do not waste and acquisition connected a awesome U.S. exchange. Please beryllium alert of nan risks associated pinch these stocks.

This article was written by

Cavenagh Research floor plan picture

5y acquisition arsenic an finance expert for a awesome BB-Bank. Currently moving towards nan CFA charter. Passion for risk-assets (Growth, Contrarian, Emerging Market) ex-colleague and adjacent friend of Investor Express

Disclosure: I/we person a beneficial agelong position successful nan shares of BAYZF either done banal ownership, options, aliases different derivatives. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Additional disclosure: this penning is not financial advise, but expresses nan opinions of nan writer only.

Editor: Naga

Read other contents from at
More Source