Bayer ADRs Fairly Priced

Tags: bayry
18 Nov 4:03am
Posted by ZacksResearch
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We maintain our Hold rating on Bayer AG (BAYRY), a major player in healthcare and chemical industry, with a price target of $60.

Bayer should be able to maintain solid growth in the next few years by shifting its focus on Healthcare segment. Therefore, future growth should be mainly driven by this segment. The acquisition of Schering AG and synergies by the acquisition should accelerate growth in the Healthcare segment in the coming quarters.

The CropScience and Material Science segments should stabilize in the coming quarters. Currently, Bayer stock is trading at 9.56x our 2009 EPS estimate of $5.29 per ADR. Based on the business outlook we mentioned above, we believe the risk/reward profile is balanced for Bayer ADRs.

Using our fiscal year 2009 earnings estimate of $5.29 per share, and a forward multiple of 13.5x, discounted at 20% for one year, we arrive at our price target of $60. The P/E ratio of 14 is between big pharma industry P/E of 15 and chemical industry P/E of 7.85. We choose this hybrid P/E because Bay operates in these two industries and each segment accounts for about 50% of its total revenue. Our chosen P/E is closer to big pharma's average P/E because the company is shifting its focus on pharmaceuticals.

Read the full analyst report on BAYRY




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