Bayer’s Cheap Stock Set for Relief After Rocky Roundup Ride

(Bloomberg) -- Bayer AG, the cheapest major European chemical or pharmaceutical stock, may be about to get more expensive.

The German company agreed to pay more than $12 billion to resolve thousands of U.S. lawsuits, including about $11 billion to settle all litigation over claims that the Roundup weed killer causes cancer. The shares initially rose as much as 3.6% in German trading on Thursday before reversing as some investors took profits and focus moved to the potential for more lawsuits.

Bayer was down 1.3% at 69.11 euros at 12:55 p.m. in Frankfurt, still above the level where the stock started the week, before news of an impending settlement broke.

“As the company’s cash flows appear to be more than sufficient to cover the potential outflow stemming from a potential settlement based on our estimates, standard valuation approaches point to significant upside potential in our view,” Michael Leuchten, an analyst at UBS AG, wrote in a note to investors before the agreement was announced.

Bayer has had a rough time since its $63 billion purchase of Roundup’s maker, U.S. seed giant Monsanto Co., in 2018. Within months of closing the deal, Bayer lost a court case alleging the product caused cancer. More court defeats would follow. Bayer has denied the link and is appealing in cases that it lost.

Even after surging 47% from their March lows, Bayer’s shares are almost a third lower than where they were in 2016, just before the company was first reported to be considering a bid for Monsanto. The stock is now valued at 9.8 times its estimated earnings for the next year, lower than any of its major European chemical or pharmaceutical peers.

Some respite came last month when Bloomberg News reported that Bayer had reached verbal agreements to resolve a substantial portion of an estimated 125,000 U.S. lawsuits, sparking a recovery in the shares. Gains were extended this week when Handelsblatt reported the company is close to a resolution of the litigation.

The company also will pay as much as $820 million to settle toxic pollution claims and make a $400 million payment for farmers whose crops were damaged by its dicamba herbicide.

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