According to the news report by MarketWatch, Berenberg Bank analyst, Alistair Campbell, investors are being too hard on pharmaceutical group Bayer AG with regard to a court ruling in the US where one of its herbicides have been tied to causing cancer.
According to Campbell, the selloff in Bayer’s shares have gone far enough. The bank therefore upgraded the company’s rating from “hold” to “buy” and increased its share price target to €113 (~$130.78). The company’s shares showed gains for this week, up by 6% to trade at a price of €82.88 (~$95.92) per share. Thanks to the gains shown by Bayer, the German DAXX 30 also gained by 0.43%.
Despite these gains this week, the company still hasn’t recovered from last week’s massive price plunge. Last week, an American jury ordered Bayer’s recently acquired Monsanto Co. to pay $289.2 million in damages in a landmark ruling about whether two of the company’s herbicides were carcinogenic.
According to the ruling, Monsanto’s Roundup as well as Ranger Pro herbicides were dangerous and could cause cancer and that the company knew – or should have known – that these two products posed risks.
The plaintiff, Dewayne “Lee” Johnson, who used to work as a groundskeeper at the Benicia Unified School District, alleged that his non-Hodgkin lymphoma was caused by exposure to Monsanto’s herbicides.
Unfortunately, there are thousands of cases lined up to go for trails, of which this was the first. In fact, the next case involving Monsanto’s Roundup is scheduled to start in St. Louis in October.
Due to these very public cases, Bayer’s shares plunged by 16% last week. Since the August 10 ruling, Bayer’s shares have lost €15 (~$17.36). This, according to Berenberg’s analyst Campbell is “extreme”. According to him, the risk to Bayer should be closed to €3.40 a share (~$3.94 per share), which comes to about €3.8 billion (~$4.40 billion).
Campbell stated that while they were aware that this herbicide issue would take some time to be resolved, they felt that Bayer had enough time till the end of the year to showcase Monsanto’s growth prospects and once more build up investors’ confidence.
Campbell stated that even their brokerage felt that the connection between the weed killer and cancer was rather tenuous. He stated that initial cases results could be misleading, and that they agreed with the decision of most of the regulatory bodies that the glyphosate present in the weed killers posed minimal cancer risks.
Bayer argued with the court’s ruling last week that it contradicted scientific evidence. Campbell said that they were looking forward to Bayer’s conference call this Thursday, where the company will present a strong defense for the product. Campbell said that based on all the evidence, he did not see the product’s sales or use declining because of this court case.
Interestingly, Berenberg Bank is not the only firm to fell that investors have overreacted. JP Morgan’s analysts have also voiced their support for Bayer, stating that investor reaction has been over the top. The bank’s analysts sent out a note to their clients last week stating that this pullback was a good opportunity to make long-term investments in Bayer.
However, there are some analysts who feel that these lawsuits against glyphosate may not be Bayer’s only problem. According to Bloomberg, US farmers may need to watch out for Dicamba, one of Bayer’s top selling herbicides. This weed killer is sprayed on about 50 million acres of cotton as well as soybean crops in the summer season. However, now there are signs that weeds are becoming resistant to this herbicide.