Shares of Bayer (BAYRY - Analyst Report) hit a 52-week high of $133.83 during the trading session on Nov 29. The German company however closed the trading session at $133.50.
With more than 41% of year-to-date return and a long-term expected earnings growth rate of 10.83%, this large-cap pharma stock seems to be an attractive pick for long-term investors. The average volume of shares traded over the last three months stands at approximately 27,528 K. The stock was primarily boosted by the company’s new drugs over the last few quarters.
Despite its strong price appreciation, this Zacks Rank #2 (Buy) stock still has enough catalysts that may further drive the stock upward. Bayer has several regulatory decisions and pipeline related events lined up in the coming quarters. Positive results from these events are expected to drive the stock further.
Of Bayer’s three major segments – HealthCare, Crop Science and Material Science - HealthCare is the primary revenue generator of the company, contributing 46.7% of the company’s total revenues in 2012. The HealthCare segment has been boosted by the addition of new products like Xarelto, Eylea and Stivarga over the last few quarters. The drugs contributed €259 million, €85 million and €51 million, respectively, in the third quarter of 2013.
Xarelto, a key revenue generator at the HealthCare segment of Bayer, is approved for several indications including stroke prevention in non-valvular atrial fibrillation, deep vein thrombosis (DVT), pulmonary embolism (PE) and reducing the risk of recurrent DVT and PE. Bayer is looking to expand Xarelto’s indication further.
Eye-drug Eylea, which was first approved for treating patients suffering from the neovascular form of age-related macular degeneration (wet AMD), offers significant commercial potential. The drug is also approved for the treatment of macular edema following central retinal vein occlusion (CRVO). Bayer is further looking to expand the drug’s indication.
Stivarga, another key drug at Bayer, also holds huge potential. The drug is approved for the metastatic colorectal cancer (mCRC) and gastrointestinal stromal tumors (GlST) indications in several countries.
Moreover, the approvals of Xofigo (oncology), Adempas tablets (pulmonary arterial hypertension and chronic thromboembolic pulmonary hypertension) and Lemtrada (multiple sclerosis) are also encouraging. These drugs are also expected to contribute significantly to Bayer’s top line in the coming quarters. The new products are expected to contribute €1.4 billion to segmental sales in 2013 and the figure is expected to reach €2.5 billion in 2015.
Premium Valuation Justified
On a price-to-earnings basis, Bayer is trading at 17.2x, reflecting a huge premium of 11.2% compared with the peer group average of 15.47x. On a price-to-book basis, the stock is also trading at a premium to the peer group average. Given the company’s strong fundamentals, the premium valuation is justified.
Other Stocks to Consider
Some other stocks worth considering include Actelion Ltd. (ALIOF - Snapshot Report), Lannett Company, Inc. (LCI - Snapshot Report) and AMAG Pharmaceuticals, Inc. (AMAG - Analyst Report). All these stocks hold a Zacks Rank #1 (Strong Buy).