Over the past five years, shares of Bayer (BAYRY +1.79%) are down by 65%. This compares unfavorably to the S&P 500, which is up by 18% over the same period. Bayer's stock has also been hit much harder by the ongoing sell-off caused by the COVID-19 pandemic; the company's shares are down by 32% year to date, while the S&P 500 is down by 24%.
However, the past is the past, and Bayer could outpace the broader market from here on out -- which would make the company a buy, given that it's currently trading at just 7 times future earnings and its forward price-to-earnings growth (PEG) ratio is just 0.1. Those are certainly attractive valuation metrics, but does Bayer have the tools to perform much better than it did over the past five years?
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Taking on global trends
Bayer operates through three segments. First, there's the crop science segment, which Bayer claims is the "world's leading agriculture enterprise." This segment sells various agricultural products such as seeds and herbicides. Second, there's the company's pharmaceutical business. Finally, there's Bayer's consumer health division, which sells over-the-counter (OTC) medical products, including such famous brands as Aleve, Alka-Seltzer, and Claritin.
Bayer is betting on two worldwide trends to help its business grow in the future. The company argues that the world's population is both increasing and aging. Its crop science business sells products that are indispensable for the healthy growth of agricultural products, and its pharmaceutical and consumer health businesses offer medical products to the public, showing that Bayer is eager to take on these challenges and profit from them. Hence the company's vision: "health for all, hunger for none."
Recent financial results
During the fourth quarter, Bayer recorded net sales of 10.8 million euros, a 3.8% increase year over year. The pharmaceutical segment was arguably the best performer. Bayer's pharmaceutical sales for the fourth quarter totaled 4.7 million euros, a 9.1% increase compared with the year-ago period.
This performance was spearheaded by products including Xarelto, an anticoagulant with 1.2 billion euros in sales for the quarter, a 15.6% increase compared with the fourth quarter of 2018. Other products that performed well include eye medicine Eylea, with sales up by 11.2% to 667 million euros, and cancer drug Stivarga, with sales of 106 million euros marking a 23.3% year-over-year increase.
Bayer's other segments did not perform as well, however. The consumer health division recorded total sales of 1.3 billion euros, a measly 0.5% year-over-year increase. Meanwhile, Bayer's crop science business reported sales of 4.7 billion euros, which decreased slightly (by 0.2%) compared with the year-ago period.
Bayer's earnings before interest and taxes (EBIT) improved significantly year over year. While the company recorded an EBIT loss of 4.2 billion euros during the fourth quarter of last year, EBIT for the fourth quarter of 2019 was a positive 396 million euros. Finally, the company's loss after income taxes of 3.9 billion euros in the fourth quarter of last year turned to an income of 1.4 billion euros this time around.
Looking forward
For fiscal 2020, Bayer expects sales across its three segments to grow modestly. For its pharmaceutical segment, the company projected sales growth between 3% and 4% compared with fiscal 2019, as well as growth of 4% in crop science and between 2% and 3% in consumer health. Bayer also expects its core earnings per share (EPS) for fiscal 2020 to grow to between 7 euros and 7.20 euros (the company's core EPS for the fiscal year 2019 was 6.40 euros). However, it is essential to note that these projections do not include potential adverse effects caused by the ongoing COVID-19 pandemic: "The forecast does not yet include an estimate of the potential impact of the coronavirus outbreak," the company said in a statement.
Should you buy?
In my view, Bayer's stock performance will likely trail that of the S&P 500 moving forward, even putting aside the current situation surrounding the COVID-19 outbreak. The company's revenue and earnings growth for the past few years has been slow, and that trend looks set to continue. When factoring in the potential adverse impact of the COVID-19 pandemic, Bayer looks even less like a buy, even taking into account its attractive valuation metrics. For those reasons, I think investors had better stay away from this stock and look for other healthcare companies to invest in.
