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Bayer AG (BAYN) Stock Analysis Pollie Style – 2018

Stock analysis Pollie-Style!

One of my goals for 2018 is more diversification in my Vrijheid Fonds. This because I think that diversification is what saves my Vrijheid Fonds when the markets will hit a financial storm. One way I want to diversify more is to diversify geographically by investing more in European companies.

I have used the Euro Dividend Champions list for a pre-selection of potential stocks. After this pre-selection I looked at companies that in my opinion, will benefit from the aging of humanity in Europe. One company caught my eye (after I took an aspirin 😉 ).

So this analysis is on Bayer AG (BAYN).

 

www.polliesdividend.com

 

Company

From Wikipedia: Bayer AG is a German multinational, pharmaceutical and life sciences company. It is founded in august 1863 and headquartered in Leverkusen, where its illuminated sign is a landmark. Bayer’s primary areas of business include human and veterinary pharmaceuticals; consumer healthcare products; agricultural chemicals and biotechnology products; and high value polymers. The company is a component of the Euro Stoxx 50 stock market index. The company’s motto is “science for a better life.”

Can I explain this to a 10-year old? What Does This Company Do?
This company makes aspirin for when you are sick and other prescription drugs. And they also make drugs for animals.

 

Pollie-code Analysis

Dividend Aristocrat: BAYN has raised its dividend for 13 consecutive years. It is therefore a Dividend Contender on the Euro Dividend Champions-list. Because in Europe companies don’t raise their dividend very often, I’m happy with a dividend contender. Therefore it is a Pass!

Dividend Yield > 2.5%: The dividend Yield of BAYN is 2.75%. This is below the industry average of 3.2%, but above its 5 years average (2.2%). The Yield is above the requirements of the Pollie-Code, and therefore it is a Pass.

Dividend payout <70%: The dividend payout is a little bit more than 50%. This is below the maximum ratio, and that is what a DGI wants. BAYN also a Pass on this point.

DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 and 10 years are 8.0, 8.7, 10.4 and 10.4. With a 3-years average around 8% this looks very good! And it is above the requirements of the Pollie-code, so it is a Pass.

P/E-ratio < 15: This is an easy metric that is well documented. It can be used as a quick metric to identify stocks that may potentially be undervalued. I use this to identify stocks that may be discounted compared to the overall stock market. BAYN has a current P/E ratio of 20.07. The industry average is 36. The P/E ratio is below the industry average. And it is slightly lower that its 5-years average (24.1). The P/E-ratio is above the requirement of the Pollie-Code. So this is a Fail.

EPS > 0: The EPS is 5.75 Therefore BAYN passed the sixth Pollie-Code

ROE > 10%: Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The current ROE is 25.2%. This is another Pass.

Market Cap. > 100M: No problem at this point. The Market cap. Is more than $ 101.900 Mil. You guested it already: Another pass.

Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 13.15. So it is another Pass for BAYN.

Stock price 52wk high-25%: The 52 week high and low are: €123.9 and €94.72. This means that Bayer will be in my buying zone when the stock price is below €116.61 ((123.9-94.72)*0.75 + 94.72). At this moment Bayer AG is trading for €98.10. Therefore it is a pass on the Pollie-Code. 

Beta: I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for Bayer is 0.99.

Debt/Equity ratio: The Debt/Equity ratio of Bayer is around 0.34. This is what we like to see in a company very high.

 

Conclusion

When I look at my analysis, Bayer AG passed 9 out of 10 metrics of the Pollie-code!! The only metric it is failing is that Bayer is trading at a higher P/E-ratio.

Furthermore in my research I found out that Bayer has a robust pipeline of new drugs ranging between phase I and phase III development, and that the company plans to launch at least 20 products by the end of 2023.

Yes, I know that there are a lot of big pharmaceutical players in this world. I think at this moment Bayer is number 10 in the world. So it is save to say that Bayer faces its share of challenges in the generic drug competition. However, I believe that new drug approvals, a solid pipeline and the company’s deals and acquisitions will pave the way for growth this year

All this information together I certainly will put Bayer AG on my watch list for my Vrijheid Fonds and probably will take action in the near future.

What are you – the readers, thoughts on Bayer AG? Is it a buy, do you own it?

Please comment on my analysis and thanks for stopping by!

Pollie.

 

Disclaimer: I’m not a registered investment adviser, investment professional, brokerage firm or investment company. Readers are advised that information on the website is issued solely for information purposes and not to be construed as an offer or recommendation to buy, hold, or sell any securities. All information, opinions, and analyses included are based on sources believed to be reliable, but no representation or warranty is made concerning accuracy, correctness, timeliness, or appropriateness. Please consult with an investment professional before investing any of your money.

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15 thoughts on “Bayer AG (BAYN) Stock Analysis Pollie Style – 2018

  1. Mr. Robot

    Great analysis Pollie! I don’t own them but as you can see on my latest blogpost I could use some 3xposure to European stocks.

    But since I pay 2.50 per stock exchange to do business on I’m reluctant to go to yet another exchange.

    Do you have the same issue?

    1. Pollie Post author

      Thanks!
      No I don’t have that issue. I have bought BAYN with my BinckBank account. And with this account I don’t pay extra for buying shares in Germany.

      Which European stocks are on your radar?

      Cheers,

      Pollie

    1. Pollie Post author

      We are getting a huge company after the merger. The EU first has to approve it. They say it will take a decision in Q1.
      After the merger of Dow and Dupont, why should we forbid the Bayer monsanto merger?

      1. Jung in Rente

        I guess one reason could be that the market is already too concentrated after the Dow/DuPont merger. However, Bayer/Monsanto could then still be able to sell parts of their existing business to a third party, like e.g. BASF. That’s why I‘m pretty optimistic that the deal will go through in the end. What I‘m not so sure about is, how large the merged company is finally going to be.

        – David

  2. Sluis

    Hi Pollie,

    Great analyses. I went to the Bayer site and besides pharmaceuticals, consumer health and animal health they also have a business unit which is focused on crop science (I think that is the reason they want to merge with Monsanto).

    Do you have any idea how many percentage the crop science is related to their healthcare actvities?

    I am also a Dutch investor so do you know anything about the dividend taxes we need to pay for a company which is situated in Germany?

    1. Pollie Post author

      I will have to look that up.

      We (The Netherlands)have a tax agreement with Germany. In this agreement is stated that we have to pay dividendtax with a max of 15%

  3. DutchIndependence

    Thanks for putting it on my radar, I’ve heard about this company multiple times but have never checked into it. Would be great to have some more EU exposure and will keep this bad boy on my list from now on.
    Great analysis.

    DI

      1. DutchIndependence

        Well currently Unilever is on the way back to my cost price, and I consider Unilever as one of my most important stocks, so maybe I will pull the trigger there. Otherwise Shell/Total, Diageo or GSK in England. That’s currently all for me, I have to get a lot more research done on this topic too!

        DI

        1. Pollie Post author

          Unilever is always a good buy. Oil companies can give you some nice dividends.
          I’ll keep a close watch of your website for your analysis
          Keep up the good work

          Cheers,

          Pollie

  4. DividendSolutions

    Hey Pollie,

    nice analysis! – i have Bayer on my watchlist and if they fall some more i think about pulling the trigger. Right now they trade at around 93€ which is another 5€ lower than at the time of your blogpost.
    The yield is not that impressive, but Bayer is a rock solid company and a conservative play in my opinion. The competition in the pharma sector is tough though and there are other names which i think are worth considering (for example: Roche, Novartis, Johnson&Johnson, Pfizer, just to name a few).

    Cheers,
    DividendSolutions

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