Bayer: Aspirin To Crop Protection

Pharmaceutical drugs account for 41% of Bayer's (BAYRY) revenues and include Xarelto, Eylea, Mirena, Kogenate and Nexavar. Its OTC product lineup is filled with household names like Aleve, Alka Seltzer, Claritin, Coppertone, Flintstone vitamins, Midol, One A Day and Solarcaine to name a handful.

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The great thing about established consumer health brands is their reliable cash flow. After all, most consumers are unwilling to save a couple of bucks when it comes to medicine for their children.

Bayer's portfolio of entrenched OTC medicines produces such a reliable stream of sales and free cash flow that it is a moneymaking juggernaut. In the last quarter, Bayer reported a 15% year-over-year increase in revenues and a 17% increase in earnings before interest, taxes, depreciation and amortization.

Bayer's lineup for established consumer brands is the foundation of profitability, but the most promising part of Bayer's business isn't its entrenched pharmaceutical and consumer health products, but its innovative crop sciences division.

Bayer acquired Monsanto in 2018 because of its world-class research and development labs, lucrative seed lineup and pipeline of crop science patents. The merger created a perfect marriage of Monsanto's seed business (biotechnology) and Bayer's crop protection (chemistry) business.

Bayer is now a one-stop shop for seeds and crop chemicals, controlling 25% of the pesticide market, and is the largest seed producer in the world. The crop science division is the largest revenue generator for Bayer and accounts for more than 45% of revenues.

The world population is growing, and genetically engineered crops have been proven to reduce production costs by an average of 28% and increase yield by 72%. Plus, climate change is making genetically-engineered crops even more attractive because biotech crops are more capable of surviving harsh conditions like droughts, floods and temperature extremes.

Most U.S. companies pay a dividend four times a year, the German multinational company only pays its dividend annually, generally in the spring (April or May). In May, Bayer paid a $0.52/share dividend, so shareholders have to wait six months to collect its next dividend. But it's worth it because it yields 3.75%. Best of all, Bayer is trading for only 13 times earnings, which is cheap.


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