I did a previous Bayer post back in 2019, as the the market seemed to be implying a massive liability for glyphosate. I know how tough it is to clink a link, but highly encourage readers to look at what the market was / is pricing in for Bayer’s liabilities. It made / makes little sense in comparison to other liabilities in the past and relative to what glyphosate is – a chemical which the EPA basically goes to the mat on saying it is safe.
Specifically, the EPA states:
- No risks of concern to human health from current uses of glyphosate.
- No indication that children are more sensitive to glyphosate
- No evidence that glyphosate causes cancer in humans. And they add: EPA considered a significantly more extensive and relevant dataset than the International Agency on the Research for Cancer (IARC).
- No indication that glyphosate is an endocrine disruptor
I mean, think about it. Glyphosate is the most widely used chemical out there and one of the most studied. I don’t think the government is some evil entity that would hide whether it caused cancer or not. Nor do I think they’d allow it to continue if there was any doubt.
It is highly concerning that a jury can say that a chemical causes cancer, when in fact the evidence shows it does not. That is a slippery ethical slope.
Since then, Bayer has won 3 other cases determining that glyphosate did not cause cancer. I guess in the future one state can say it does and another says it won’t? Hm.
Maybe not. The Supreme Court may hear Bayer’s case. Or they may not. But given this situation I discuss above, it seems like they should!
If Bayer’s case is heard, they could help resolve about 31,000 cases against it AND a huge overhang on the stock.
If Bayer’s case is NOT heard, I think we’re basically in the same situation where Bayer will slowly but surely have to prove its case one by one. That seems more priced in (dangerous words of course).
Bayer currently trades for 7.4x ’23 EBITDA – this is for a pharma and consumer health giant (that also owns Monsanto and legacy Bayer crop protection which is just 40% of EBITDA). Merck and Bristol Myers Squibb trade for around 10x ’23. Is the market implying Bayer’s crop protection biz is worth, like 4x? That is crazy. Especially for me who is someone who thinks the glyphosate liabilities are overblown. They actually announced they are selling a piece of the business for 12x. Hm, maybe just keep doing that?
Last, we have also seen creative ways for dealing with liabilities, like the talc liability and asbestos. To be clear, I think glyphosate is nothing like those. Those actually caused issues! But I am sure Bayer is running through the options to mitigate risk…
I could see 25-30% upside on Bayer from some sort of resolution and even then I don’t think it’d look expensive.