Morningstar | Bayer Posts Steady 2Q as Monsanto Acquisition Is Incorporated Into Results
Bayer reported second-quarter results (including the Monsanto acquisition) that largely matched our expectations, but we plan to slightly lower our fair value estimate as the final dilution due to shares issued for Monsanto was higher than we projected. However, we continue to view the company as undervalued with a narrow moat. We believe the investment community underappreciates the company's strong positioning in several healthcare markets. Also, we expect the acquisition of Monsanto to improve the firm's competitive positioning in the crop science industry.Overall, the early integration with Monsanto is tracking well. However, with the majority of Monsanto's sales and earnings achieved in the first half of 2018 (due to the cyclicality of the crop science business) before Bayer completed the acquisition on June 7, the earnings power of the acquisition will become more prominent in 2019. However, the final share count used to acquire Monsanto ran ahead of our projections, which will put some pressure on our earnings projections. Also, regarding the glyphosate legal challenges, Bayer didn't provide any updates beyond the expectation that no other cases would completed by the end of the year. Also, this ongoing litigation hasn't impacted the demand for glyphosate products. We continue to model EUR 2 billion in costs related to these legal challenges spread out over the next three years.
Turning to the healthcare business, the majority of leading recently launched drugs continue to post solid gains, offsetting some weakness from older drugs and the consumer healthcare products. Cardiovascular drug Xarelto and ophthalmology drug Eylea both continued to post strong gains, up 11% and 23% respectively. We expect continued robust growth for Xarelto, as the recent approval expanding the drug's indication into coronary and peripheral artery disease markets should open up a significant market opportunity.
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