Life sciences company Bayer Aktiengesellschaft (BAYRY) operates through the three broad segments of Pharmaceuticals; Consumer Health; and Crop Science. The company offers prescription drugs, non-prescription over-the-counter medicines, and chemical and biological crop protection products. It is headquartered in Leverkusen, Germany.
Recently, the Supreme Court rejected the company’s appeal to stop lawsuits that claimed that BAYRY’s Roundup (weedkiller) causes cancer. The lawsuits impose a significant legal challenge for the company. However, agriculture groups have sided with the company, stating that the verdict might affect the food supply. Hence, despite the Supreme Court ruling, farmers might not choose to give up the weedkiller.
BAYRY’s stock has gained 13.3% year-to-date and 13% over the past six months to close its last trading session at $15.02. However, it has declined 4.3% intraday.
Here are the factors that could affect BAYRY’s performance in the near term:
Solid Financials
For the first quarter ended March 31, BAYRY’s net sales increased 18.7% year-over-year to €14.64 billion ($15.35 billion). Its net income rose 57.5% from the prior-year quarter to €3.29 billion ($3.45 billion). EBITDA improved 26.9% from the prior-year period to €5.29 billion ($5.55 billion). EPS came in at €3.35, up 57.3% from the same period the prior year.
Favorable Growth Story
BAYRY’s revenue has grown at a 5.2% CAGR over the past three years and a 7.2% CAGR over the past five years. Its EBIT and net income have increased at CAGRs of 30.4% and 30.9% over the past three years. The company’s EPS has grown at a 57.5% CAGR over the past three years.
Low Valuations
In terms of its forward non-GAAP P/E, BAYRY is trading at 8.07x, 57.9% lower than the industry average of 19.15x. The stock’s forward EV/Sales multiple of 1.93 is 48.1% lower than the industry average of 3.72. In terms of its forward EV/EBITDA, it is trading at 7.32x, 43.8% lower than the industry average of 13.01x.
Wide Profit Margins
BAYRY’s trailing-12-months EBIT margin and EBITDA margin of 17.73% and 20.54% are 1,292.8% and 414.1% higher than their respective industry averages of 1.27% and 3.99%.
Its trailing-12-months ROE, ROTC, and ROA of 6.11%, 6.52%, and 1.75% are significantly higher than their industry averages of a negative 35.80%, 19.70%, and 27.11%.
POWR Ratings Reflect Promising Prospects
BAYRY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock has a Value grade of A in sync with its discounted valuations. The stock has an A grade for Growth, consistent with its favorable growth story.
In the 171-stock Medical – Pharmaceuticals industry, it is ranked #10.
Click here to see the additional POWR Ratings for BAYRY (Momentum, Stability, Sentiment, and Quality).
View all the top stocks in the Medical – Pharmaceuticals industry here.
Bottom Line
Despite the legal battle, the company seems to be enjoying farmers’ support. Moreover, investors seem to be bullish on the stock as it has outperformed the S&P 500 this year. Also, considering the company’s stable financial growth, I think the stock might be a solid buy now.
How Does Bayer Aktiengesellschaft (BAYRY) Stack Up Against its Peers?
While BAYRY has an overall POWR Rating of A, one might consider looking at its industry peers, Merck & Co., Inc. (MRK) and Novartis AG (NVS), which also have an overall A (Strong Buy) rating.
BAYRY shares were trading at $14.68 per share on Thursday morning, down $0.34 (-2.25%). Year-to-date, BAYRY has gained 13.14%, versus a -20.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.
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