Headquartered in Leverkusen, Germany, Bayer AG (BAYRY Quick QuoteBAYRY - Free Report) is a life science company with core competencies in the areas of health care and agriculture. It looks like a great stock to buy now. Here are some reasons for the same.

Favorable Rank and Solid VGM Score: Bayer carries a Zacks Rank #2 (Buy) and a favorable VGM score of ‘A’. Back-tested results show that only stocks with a VGM Style Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best upside potential.

Rising Estimates and Share Price: Earnings estimates for Bayer moved up 6.9% and 8.3% for 2017 and  2018, respectively, over the past 30 days. Also, the company’s earnings performance has also been pretty impressive, as it has been reporting positive surprises consistently. In fact, the average earnings beat over the last four quarters is 10.25%.

After declining in 2016, share price of the company has picked up in 2017.
Shares of Bayer have rallied 24.9% this year so far while the Zacks classified Large-Cap Pharma industry has gained 8.8%.

Strong Q1 Results: Bayer beat both earnings and revenue estimates in the first quarter of 2017. The key products at the Pharmaceuticals segment performed well during the quarter and should continue to do so in the upcoming quarters. Covestro posted substantial growth in sales and earnings which led the company to raise its Group outlook for 2017.

Recently Launched Drugs to Do Well: On the back of the recently launched products (new Kyleena intrauterine device) at its Pharmaceuticals business, Bayer expects higher sales and earnings over the coming years across all its businesses. These recently launched products have a combined peak sales potential of more than €10 billion. Bayer expects its Pharmaceuticals business to achieve average annual sales growth of approximately 6% by the end of 2018. The company targets EBITDA margin before special items of about 32–34% at Pharmaceuticals in 2018.

Strong Pipeline: Bayer has a robust pipeline ranging between phase I and  phase III development. Interesting late-stage candidates include BAY 1841788 (non-metastatic castration-resistant prostate cancer), BAY 1841788 (metastatic hormone-sensitive prostate cancer), copanlisib (various forms of non-Hodgkin lymphoma) and finerenone (diabetic kidney disease) among others.

Bayer believes six of its pipeline candidates – vericiguat, finerenone, vilaprisan, BAY-1841788, anetumab ravtansine and copanlisib to hold combined peak sales potential of at least €6 billion. The company plans to launch at least 20 products by the end of 2023.

In Apr 2017, the FDA approved Stivarga tablets for the second-line treatment of patients with hepatocellular carcinoma (HCC) who have been previously treated with Nexavar (sorafenib). The drug is under review in Japan for the second-line treatment of patients with hepatocellular carcinoma (HCC). In the EU, the filing for this indication was done in Nov 2016. Bayer is also looking for a label expansion of Stivarga.

Pending Monsanto Acquisition a Smart Move: Bayer has made several acquisitions and entered into a number of deals to boost its portfolio in the past few quarters. Bayer is looking to acquire Monsanto Company in an all-cash transaction worth approximately $66 billion. The combined business is expected to boost Bayer’s Crop Science business and provide accretion to its core earnings from the first full year of the closing of the transaction (slated to close by the end of 2017), followed by double-digit percentage growth.

Bayer also expects annual earnings contributions of around $1.5 billion from synergies after three years of closing the transaction, as well as additional future benefits from integrated offerings. We believe that the proposed Monsanto acquisition is a strategic move which will offer Bayer with a broad set of solutions to meet farmers’ current and future needs.

Conclusion

Bayer faces its share of challenges such as generic competition for many drugs including the Yaz franchise (oral contraceptives). However, we believe that new drug approvals, a solid pipeline and the company’s deals and acquisitions will pave the way for growth this year.

Key Picks

Other favorably ranked stocks in the health care sector include VIVUS, Inc. , MEI Pharma, Inc. (MEIP Quick QuoteMEIP - Free Report) . Both VIVUS and MEI Pharma sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

VIVUS’ loss per share estimates narrowed from 50 cents to 39 cents for 2017 over the last 30 days. The company posted positive earnings surprises in all of the four trailing quarters, with an average beat of 233.69%.

MEI Pharma’s estimates narrowed from loss per share of 1 cent to gain per share of 1 for 2017 over the last 30 days. The company posted positive earnings surprises in three of the four trailing quarters, with an average beat of 66.56%.

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