'As The Dust Settles,' Deutsche Bank Says Bayer Remains A Buy

Bayer AG (ADR) BAYRY has made a $62bn offer for Monsanto Company MON. Deutsche Bank’s Tim Race maintained a Buy rating for Bayer, with a price target of €124. The analyst commented that the combination of the two companies “makes both operational and financial sense.”

Investors did not seem to favor Bayer’s offer for Monsanto. Bayer’s shares have tumbled more than 15 percent on concerns related to the size, opportunity cost, financing structure as well as the differences in opinion between management and investors on the company’s strategic direction.

The news is out and shares have responded to it, analyst Tim Race said, while adding “as the dust settles we continue to see value in the business.”

Good Fit

Bayer’s shares could be significantly volatile in the near term, while the negotiations for Monsanto play out. Race mentioned, however, that the proposed deal was a good strategic fit and is expected to be 11-13 percent EPS accretive in 2019-2020, which would contribute towards an annual growth rate of low-to-mid-teen for earnings.

“In our view, Bayer was already discounted due to uncertainties in its growth from Healthcare longer-term. This deal does not directly solve these, but it potentially grows earnings through an alternative source,” the analyst added.