Kepler Cheuvreux UPGRADES Bayer stock rating on undervalued shares

Kepler Cheuvreux upgraded Bayer AG (OTC:BAYRY) to Buy from Hold, maintaining a €33.00 price target, based on the belief that the current share price reflects existing operational challenges and significant litigation risks. Despite increasing their litigation risk cushion to €15 billion, the firm cites Bayer's leading position in agriculture and its strong pharma and health portfolio as reasons for the upgrade. Kepler Cheuvreux suggests the stock is undervalued at current levels, despite acknowledging the challenges stemming from the Monsanto acquisition.

Analysis

Kepler Cheuvreux has upgraded Bayer AG (BAYRY) to a Buy rating from Hold, while reiterating a price target of €33.00. This revised stance is predicated on the assessment that Bayer's current share price adequately incorporates existing operational difficulties and a substantial portion of potential worst-case litigation outcomes, even after Kepler Cheuvreux increased its litigation risk provision from €10 billion to €15 billion. The firm acknowledges that resources allocated to the 2018 Monsanto acquisition could have been more effectively directed towards organic growth initiatives, and notes that past missteps are being addressed by the current management team. Supporting the upgrade, Kepler Cheuvreux highlights Bayer's significant market position as the world's largest agricultural enterprise, complemented by a robust pharmaceutical and health portfolio. Consequently, the research firm suggests that Bayer shares may present an undervalued opportunity at prevailing levels, notwithstanding the persistent challenges associated with the Monsanto integration and related legal issues.

Key Decisions for Investors

• Investors should consider Kepler Cheuvreux's view that Bayer's stock may be undervalued, as the current price potentially reflects peak pessimism regarding operational and litigation headwinds.
• Closely monitor developments in Bayer's ongoing litigation and the effectiveness of management's strategies to mitigate these risks and improve operational performance post-Monsanto acquisition.
• Evaluate the long-term potential of Bayer's core agricultural, pharmaceutical, and health divisions, which form the basis of Kepler Cheuvreux's optimistic outlook, against individual risk appetite and investment objectives.