(Bloomberg) -- As Bayer AG shares head for their worst week in almost a year, the days of 2015 when the German company was valued at more than €120 billion ($127 billion) are an even more distant memory.
Bayer — which focuses on agriculture, drugs and consumer health — on Tuesday cut its guidance for the year and forecast a “muted” outlook for 2025. Its shares have fallen 15% so far this week, hitting the lowest level in two decades and reducing the firm’s market value to about €20 billion.
Analysts don’t see a quick rebound for the shares given the multiple pressures facing the company, such as rising generic competition for its blockbuster blood-thinning drug Xarelto and regulatory challenges at its crop protection business. And although Chief Executive Officer Bill Anderson has already implemented cost-cutting measures, the prospect of another year of transition for Bayer is capping investor enthusiasm.
“We expect investors to remain on the sidelines until more progress has been made on the business transformation,” Goldman Sachs Group Inc. analyst James Quigley said in a note this week.
Bayer shares have lost more than three-quarters of their value since the company completed its purchase of Monsanto, primarily a manufacturer of seeds and herbicides, in June 2018. As part of the acquisition, Bayer also inherited US litigation over the weedkiller Roundup and the company has already spent at least $10 billion of the $16 billion it earmarked to resolve the mass litigation.
The company insists the product is safe and is looking to get beyond the expensive legal situation by appealing lost trials — potentially to the US Supreme Court — as well as winning more jury trials on the matter and lobbying state and federal politicians to pass laws making it harder for plaintiffs to sue the company. But until the litigation is resolved, it will continue to weigh on the shares.
Investors will also be focused on nearer-term issues such as the company’s balance sheet and earnings momentum.
“We think investors need more clarity on cash for next year,” Barclays Plc analyst Emily Field said in a note. “A year of earnings declines will lead to uncertainty.”
Price Targets
Barclays and Goldman Sachs are among analysts that decreased their price targets on the stock following Tuesday’s results. But even after this week’s drop, none of the analysts tracked by Bloomberg have a sell rating or equivalent. Eighteen recommend holding the stock, while seven rate Bayer a buy.
Some investors see potential for the stock to fall further, with D. E. Shaw & Co. Inc. disclosing a short position of 5.01 million shares in the company this week. Bayer is the investment firm’s third-biggest short position in Europe by current market value, according to data compiled by Bloomberg.
For now, analysts are bracing themselves for another challenging year. “It doesn’t require a capital markets specialist to acknowledge that Bayer’s share price cannot (and will likely not) recover if consensus earnings estimates continue to fall as they have over the last few years,” Deutsche Bank AG analyst Falko Friedrichs wrote in a note.
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