EUR 850.00 For Business Accounts Only

Morningstar | Bayer Faces Steady Growth Over Next Three Years, Buoyed by Healthcare and Crop Science

Largely on the basis of the strong competitive advantages of the healthcare group and to a lesser extent the crop science business, we believe Bayer has created a wide economic moat. Also, the recent divestiture of no-moat material science group Covestro leaves the company in a stronger competitive position.In the healthcare division, Bayer's strong lineup of recently launched drugs and solid exposure to biologics should support steady long-term growth. Two of Bayer's key drugs are biologics: Betaferon for multiple sclerosis and Kogenate for hemophilia. While competition is increasing in both areas, the manufacturing complexity of these drugs deters generics from entering the market. Further, strong demand for cardiovascular drug Xarelto and ophthalmology drug Eylea should continue to drive growth. Bayer's healthcare segment also includes a consumer health business with leading brands Aspirin and Aleve. Brand recognition is key in this segment, as evidenced by the company's iconic Aspirin, which continues to produce strong sales even after decades of generic competition. The 2014 acquisition of Merck's consumer products increased the scale of Bayer's consumer group.Bayer also sells products for animal health where intangible assets and scale help the firm's competitive positioning. Bayer's leading lines include Advantage and Baytril. While we don't expect robust growth for this mature segment, the cash flows should be steady. However, in late 2018, Bayer decided to divest the unit, which should gain a solid sales price given the high market interest in the industry.Bayer runs a leading crop science segment, which includes crop protection products (pesticides, herbicides, fungicides) and the fast-growing plant and seed biotechnology business. Similar to the drug business, this segment is research and development intensive, and Bayer has developed a strong portfolio of products. The downside to this business is that demand is heavily dictated by weather and commodity prices, which will determine how much farmers can afford to spend on crop treatment. The acquisition of Monsanto has significantly expanded Bayer's competitive position in this industry.