Crop Science And Pharmaceuticals Will Suffer Under Mounting Liabilities

Key Takeaways

• Persistent legal, regulatory, and debt challenges are constraining Bayer's cash flow, margins, and financial flexibility, threatening both investment capacity and shareholder returns.
  
• Shifting market preferences and regulatory environments, alongside rising competition, are impeding revenue growth and eroding the long-term sustainability of core business segments.
  
• Strong new product launches, global agricultural gains, cost controls, legal risk reduction, and focus on innovation collectively strengthen long-term revenue and earnings prospects.

Catalysts

Operates as a life science company worldwide.

• Legal liabilities and compliance costs are poised to remain persistently high due to Bayer's ongoing exposure to glyphosate (Roundup) and PCB litigation, with no clear visibility on the ultimate cash settlements or regulatory outcomes; this structural overhang will likely constrain free cash flow and erode net margins for multiple years, even if individual settlements appear low cost in the short term.
  
• Intensified regulatory scrutiny and adverse product decisions-such as recent expirations and bans on key crop protection products like dicamba and Movento-signal a long-term shift toward more restrictive approval environments in major markets. These recurring regulatory setbacks will increasingly impede revenue growth and contribute to volatile earnings in Crop Science.
  
• The mounting global preference for ESG-compliant business models risks driving ongoing divestment and raising Bayer's cost of capital. With investors and consumers shifting away from traditional agrochemical and pharmaceutical giants, future financing and investment in innovation may be hampered, dampening both topline growth and returns on invested capital over time.
  
• Structural industry pressures from generic drug competition and worldwide government efforts to lower drug prices are accelerating, as demonstrated by Xarelto's rapid revenue erosion. These forces are expected to sharply compress pharmaceutical net margins and undermine the sustainability of Bayer's earnings base through the end of the decade.
  
• Elevated debt levels-estimated at over €33 billion-stemming from the Monsanto acquisition remain a major impediment to financial flexibility. With continued provisioning, cash outflows, and operational headwinds likely to persist, the company faces heightened risk of credit downgrades and restricted ability to invest, thus inhibiting both future portfolio transformation and shareholder returns.

Bayer Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Bayer compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Bayer's revenue will decrease by 0.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -7.4% today to 5.6% in 3 years time.
• The bearish analysts expect earnings to reach €2.6 billion (and earnings per share of €2.7) by about August 2028, up from €-3.4 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 10.2x on those 2028 earnings, up from -7.8x today. This future PE is lower than the current PE for the GB Pharmaceuticals industry at 17.0x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.16%, as per the Simply Wall St company report.

Bayer Future Earnings Per Share Growth

Risks

• The company's pharmaceutical division is showing strong growth from new launches such as Nubeqa and Kerendia, which have exceeded sales expectations, positioning Bayer for revenue stability or growth as these products offset losses from maturing drugs.
  
• Bayer's Crop Science segment is benefiting from global corn acreage expansion, recovery in key markets like Mexico and Argentina, and higher-than-expected adoption of new traits such as Intacta 2 Xtend in Brazil, all of which could support sustained revenue growth in agricultural solutions.
  
• Ongoing cost savings initiatives and execution of a 5-year framework are supporting margin resilience and improving operational efficiency, providing the potential for improved net margins and greater free cash flow in the longer term.
  
• Bayer is making significant progress in resolving major litigation exposures, actively containing risks related to glyphosate and PCBs through settlements, provisioning, and multipronged strategies, which could sharply reduce legal uncertainty and future liabilities, positively impacting earnings and cash flow.
  
• The launch of new innovation in both crop protection and pharmaceuticals, alongside geographic and product diversification, positions Bayer to benefit from long-term secular trends such as population growth, aging demographics, and heightened demand for food security and healthcare, all likely to lift revenue and earnings over the longer horizon.

Valuation

• The assumed bearish price target for Bayer is €23.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Bayer's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €39.0, and the most bearish reporting a price target of just €23.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €46.0 billion, earnings will come to €2.6 billion, and it would be trading on a PE ratio of 10.2x, assuming you use a discount rate of 5.2%.
• Given the current share price of €27.04, the bearish analyst price target of €23.0 is 17.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.