(new: price, HSBC arguments added)
FRANKFURT (dpa-AFX) - Bayer shares are in high demand on Wednesday following two buy recommendations. The pharmaceutical and agricultural chemicals group's shares climbed to €27.73 in morning trading, making them the best-performing DAX stock and reaching their highest level since October. They had previously closed just below €27 on two occasions.
Investment banks HSBC and Kepler Cheuvreux have now given a "buy" rating with price targets of up to €33. According to Kepler's analysis of the agrochemical industry, much of the worst-case scenario for the US litigation and all operational problems has long been factored into the share price. The experts even assume a higher litigation risk of €15 billion in their valuation model, up from €10 billion previously, and nevertheless recommend buying the shares of one of the world's leading agrochemical companies. In addition, the group has a solid pharmaceutical and healthcare portfolio.
HSBC expert Rajesh Kumar has set a target price of €32, but sees the potential for the share price to almost double from its current level in the best-case scenario. In addition to a satisfactory resolution of the US legal dispute, this would require good results for the drug Asundexian. The factor XI anticoagulant is being tested in patients for secondary stroke prevention. According to Kumar, it is currently hardly included in analyst models. He estimates peak sales at around €3 billion and expects a 40 percent probability of success.
The reason for the caution of many analysts is likely to be the failure of Asundexian in a study for another indication towards the end of 2023. At that time, the share price had plummeted. Bayer's head of pharmaceuticals, Stefan Oelrich, expects the results of the ongoing study in the second half of the year.
However, the main topic of discussion at Bayer in recent years has been the US litigation surrounding the weed killer glyphosate, which has already cost the company billions. In addition, there are lawsuits concerning the health effects of the chemical PCB, which has been banned for decades and was previously sold by Monsanto. Bayer acquired both with the takeover of Monsanto.
In the summer of 2018, Bayer lost its first lawsuit over alleged cancer risks associated with glyphosate, which set off a flood of lawsuits. Since then, the share price has been on a downward trend. Despite the recent recovery, the shares are still trading at around 70 percent below their level before the defeat.
Bayer is currently relying on the highest US court to get the legal issue of glyphosate off the table in the long term. In the spring, the DAX-listed company once again took one of the cases to the US Supreme Court. The background to this is conflicting rulings by US federal appeals courts in the dispute over alleged cancer risks. Whether the US Supreme Court will take up the case will be announced in June or as late as October. However, a decision in the case itself is not expected until next year.
If the Supreme Court takes up the case, there could be upside potential of 10 to 25 percent from the level before its upgrade, argued expert James Quigley of investment bank Goldman Sachs in early June. He also points to a good start to the year for Bayer in terms of operations, i.e., in its day-to-day business. The agricultural division is exercising cost discipline and the pharmaceuticals business is showing strength.
All in all, the cycle of declining market expectations may therefore have bottomed out, Quigley continued at the time. As soon as investors gain more confidence in the reduced cost base, which has been achieved in part through the restructuring of management structures under CEO Bill Anderson, market earnings expectations should rise again. /ag/mis/jha
