On Wednesday, CFRA reiterated its Hold rating on Bayer AG (ETR:BAYGN) (BAYN:GR) (OTC: BAYRY), maintaining a price target of EUR29.00. The firm's decision reflects an anticipation of near-term challenges, despite some areas of growth within the company. First-quarter sales for Bayer (OTC:BAYRY) in 2024 showed a 4% decline, while EBITDA before special items saw a marginal improvement of 1 percentage point.
The growth in the Pharmaceuticals division, aided by new product launches and the performance of Eylea, along with effective cost control measures, has helped offset weaker results in other segments.
Still, the Crop Science division continued to face difficulties due to lower prices for glyphosate-based products, and the Consumer Health division suffered from reduced volumes. This was attributed to a weaker cold season and U.S. retailers optimizing inventory levels.
Bayer has maintained its constant currency outlook for the full year, which suggests a continued decline in earnings, now compounded by larger expected currency headwinds. CFRA has adjusted its forecast for Bayer's EBITDA before special items margins to around 22%-23% for both 2024 and 2025, down from 24.6% in 2023. This adjustment is to account for the anticipated softer glyphosate pricing.
In light of these developments, CFRA has revised its earnings per share (EPS) estimates for Bayer. The firm now expects an EPS of EUR5.12 for 2024, down from the previous estimate of EUR5.30, to reflect the updated currency outlook.
For 2025, the EPS estimate has been adjusted to EUR5.55, a decrease from the earlier forecast of EUR6.00. The price target of EUR29.00 implies a 2024 price-to-earnings (P/E) ratio of 5.7 times, which is below Bayer's five-year average P/E ratio of 7.7 times.
InvestingPro Insights
The latest data from InvestingPro paints a nuanced picture of Bayer AG's financial health and market position. Despite a challenging fiscal environment, Bayer's valuation suggests a strong free cash flow yield, which could be attractive to investors seeking companies with potential for cash generation. Furthermore, Bayer's resilience is highlighted by its low price volatility, indicating a level of stability in its stock price amidst market fluctuations.
From a strategic perspective, Bayer remains a prominent player in the Pharmaceuticals industry, a fact that may reassure investors about its long-term market presence. Moreover, the company's commitment to shareholders is evident in its 33-year history of consistent dividend payments, a testament to its financial discipline and prioritization of shareholder returns.
Key metrics from InvestingPro Data reveal a market capitalization of $31.18 billion, a forward-looking P/E ratio of 8.1, and a PEG ratio that suggests the stock may be undervalued relative to its earnings growth potential. While revenue has seen a decline in the last twelve months, the company's gross profit margin remains robust at 58.55%, indicating effective cost management relative to revenue.
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