Cit downgrades Bayer, worries over litigation risks

Investing.com - Citi downgraded its stance on Bayer (OTC:BAYRY), while slashing its target price and earnings estimates, citing potential litigation woes.

Citi Research cuts its investment stance on the German pharmaceutical and biotechnology giant to ‘neutral’ from ‘buy’, reducing its 12-month target price to €33 from €86.

At 10:10 ET (15:10 GMT), Bayer stock fell 1% in Frankfurt to €28.28. 

“We update our model to reflect a deteriorating outlook for Pharma, Crop, FX, interest expenses, as well as the expected dividend cut,” analysts at Citi Research said, in a note, adding this resulted in 

2023-30 EPS downgrades up to 35%.

The bank noted that the termination of its asundexian, as a potential treatment in patients with atrial fibrillation, for lack of efficacy was a major setback. 

Additionally, recent litigation setbacks have created further headwinds and sentiment overhang, forcing investors to consider the risk of further litigation outflows over time. 

“Bayer has currently provisioned €8bn to deal with glyphosate/PCB litigation. In light of recent legal setbacks, we are also forced to consider further litigation payouts in our valuation framework. We increase our litigation-related provisions to €18bn (previously €8bn) in light of the increasing damages risk related to the ongoing glyphosate/PCB litigation,” Citi said.

Given the macro backdrop, and in the absence of a financial buyer, we see a trade sale of Consumer and/or partial IPO of Crop as unlikely scenarios to be announced in the near future.

“While new management is focused on changing the culture at Bayer, driving innovation, and improving FCF generation, it is attempting to do this whilst the top line is under pressure and the balance sheet constrained,” the bank added.