We are upgrading Bayer AG (BAYRY) to Neutral from Underperform following the impressive fourth quarter and full-year 2010 results and the positive outlook provided by the company.
Bayer performed impressively in the final quarter of 2010. Revenues increased 14.5% driven by impressive performance across all segments. The three major segments: Healthcare, Material Science and Crop Science accounted for approximately 45.6%, 26.7% and 5.3%, respectively, of total revenues recorded during the final quarter of 2010.
The Material Science segment performed most impressively with sales increasing 28.2%. Bayer noted that demand increased significantly at its primary customers. For full-year 2010, sales in the Material Science segment climbed 35% to €10,154 million.
(Read our full coverage of the earnings report: Revenues Rise at Bayer )
The encouraging performance of the Material Science segment was attributable to the improvement in the economy. The rebound in Bayer’s Material Science segment will enhance its top line in our view. We are also encouraged by the robust growth of pharmaceutical products at Bayer.
Based on the strong fourth quarter 2010 results, Bayer gave a positive outlook for 2011 and 2012. The company expects the global recovery to continue based on which it has projected a currency- and portfolio-adjusted sales growth in the range of 4% – 6% in 2011.
Revenues for 2011 are expected between €35 billion and €36 billion. Bayer expects 2011 earnings to increase by 10%. For 2012, Bayer expects sales to grow by 5%.
Bayer intends to invest €15 billion towards capital expenditure and research & development. Given the positive outlook, we have upped our earnings estimates for 2011 and 2012.
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