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Bayer AG - ADR (BAYRY)

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Encouraged by strong second quarter 2012 results, upbeat guidance and a series of positive subsequent developments, we are upgrading Bayer AG ADRs (BAYRY) to Outperform. Bayer performed impressively in the second quarter of 2012 driven by increased revenues. Management also raised guidance for 2012 revenues as well as earnings.

Subsequently, Bayer has witnessed a series of positive developments, including progress regarding oncology candidate regorafenib and label expansion efforts for Xarelto. Moreover, the decision of Bayer's HealthCare unit to buy Teva's animal health business in the US is also a positive move.

Consequently, we believe that the current price represents an attractive entry point for long-term investors. Over the last five years, Bayer has traded in a range of 9.1x to 28.3x trailing 12-month earnings. Our target price of $103.00 is based on approximately 15.1x our 2012 EPADS estimate of $6.81.

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