Bayer Earnings: Lower than Expectations; Fair Value Decreased on Refreshed Long-Term Outlook

Bayer’s third-quarter earnings were lower than our expectations, with foreign exchange headwinds in crop sciences and consumer health significantly affecting the top-line reported results. After a fresh look at the company’s product lines and margin profile, we lower our fair value to EUR 45.10 per ordinary share (from EUR 68.00) and $10.60 per ADR (from $18.50). Although parts of the pharmaceuticals business are attractive to us, and we recognize the near-term margin improvement driven by the company’s cost-cutting programs, our model now incorporates a more pessimistic long-term view of growth and profit margins, which are the main drivers for our lower fair values.