Will Bayer's Investment In Its Reputation Boost BAYRY Stock?
Zacks Investment Research | Jun 17, 2019 02:25AM ET
Bayer (OTC:BAYRY) announced last Friday that it is set to invest approximately 5 billion euros, or around $5.6 billion, in order to further research "additional methods to combat weeds." The company also aims to reduce its environmental impact by 30% by 2030.
Litigious Problems
Bayer’s focus on researching weed killers comes after recent lawsuits, including one it settled in which it has to payout $2 billion. The plaintiffs in that lawsuit claimed that the glyphosate in Monsanto’s Round-Up, now sold under the Bayer name, cause cancer. Bayer was found liable for the plaintiffs contracting non-Hodgkin’s lymphoma.
In a statement released in May after the verdict, Bayer maintained that glyphosate, an herbicide used in Round-Up, and Round-Up itself, were both safe when used correctly. Additionally, Bayer pointed out that the verdict is a "stark" contrast from the EPA’s determination that there are "no risks to public health from the current registered uses of glyphosate." Bayer was optimistic in this press release, although it’s important to realize that a company wants its outlook to be positive. The firm said that this verdict has no impact on future verdicts.
Bayer acquired Monsanto (NYSE:MON) in 2018 for about $62 billion. Since the acquisition, Bayer stock has tumbled 50%. The falling stock price has brought Bayer’s market cap to around $56 billion, 9% less than it paid for Monsanto last year. Currently, there are more than 13,000 lawsuits against the company over the use of glyphosate, claiming that it causes cancer.
Lawsuits can cause fluctuations in the stock, as a ruling for the company is likely to boost the stock and a ruling against the company is likely to hurt the stock. Having so many lawsuits ongoing, many investors may not want to deal with these fluctuations and uncertainty.
Going Forward
Bayer, in its press release, noted that "glyphosate will continue to play an important role in agriculture and in Bayer’s portfolio." While Bayer is confident in Round-Up, it will use the investment in research to provide farmers with multiple weed killer options. Since the lawsuits against the company primarily deal with the potentially harmful effects of glyphosate, the EU and EPA may do more research into the chemical. If the EU and EPA were to ban the use of glyphosate, Bayer is setting itself up for the future by doing the research for a new, glyphosate-free product now.
Get The News You Want
Bayer did not acknowledge any wrong doing, but did commit itself to improving the company. On top of the aforementioned plans to reduce its environmental impact, Bayer is "raising the bar in transparency… and engagement." With these goals in mind, Bayer looks to improve its perception in the public eye. If Bayer is able to produce a glyphosate-free weed killer, its stock price could benefit.
Bayer does boast an "A" grade for Value in our Style Scores system. The stock’s P/E of 7.76 represents a discount compared to its industry average of 15.10. It is important to point out that while Bayer’s low P/E may give it some appeal as an investment option, the low P/E may also just be a result of the stock’s falling price over the past few months. While Bayer may be in potential ongoing legal trouble, its outlook in terms of earnings is positive. Zacks Consensus Estimates call for 9.14% earnings growth in fiscal 2019, followed by an additional 14.66% earnings growth in fiscal 2020.
Bottom Line
The growth of Bayer’s earnings in the next couple of fiscal years does look good, but it may still be a risky investment with all the pending lawsuits. More billion-dollar settlements could negatively impact the company. But, if these lawsuits are resolved and Bayer comes out relatively unscathed, the stock could bounce back.
Radical New Technology Creates $12.3 Trillion OpportunityImagine buying Microsoft (NASDAQ:MSFT) stock in the early days of personal computers… or Motorola (NYSE:MSI) after it released the world’s first cell phone. These technologies changed our lives and created massive profits for investors.
Today, we’re on the brink of the next quantum leap in technology. 7 innovative companies are leading this "4th Industrial Revolution” - and early investors stand to earn the biggest profits.
Zacks Investment Research
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.