is it a good turnaround stock?

Bayer (ETR: BAYN) share price plunged to the lowest level since February 6 after the company lowered its forward guidance. It retreated to a low of €55.95, which was about 15% below the highest level this year. It remains relatively above the lowest level this year.

Bayer guidance cut

Bayer, the giant German company, published results that were significantly stronger than what analyst were expecting. In total, the company’s total revenue jumped to over €50.7 billion in 2022 from the previous €44 billion. This happened as demand for its products rose following Russia’s invasion of Ukraine.

Its EBITDA rose from over €6 billion to over €13 billion while its net income jumped to over €4 billion. This makes it one of the most profitable DAX index constituents. However, the Bayer stock price plunged after the company warned that its business would slow in 2023. 

It expects that its core earnings per share will come in at €7.40 this year, slightly below the estimated €7.90. Further, the company expects that its crop science business will have an extremely slow growth this year as prices retreat.

Despite the crash, Bayer share price has numerous catalysts going forward. First, the company will soon have a new Chief Executive Officer (CEO) from Roche who will be tasked with turning around the company. He will replace a CEO who has helped destroy shareholder value substantially. 

As we saw with Rolls-Royce, a new CEO can inspire change and boost its stock. Second, Bayer could split its business into two companies. One could focus on crop science and the other one pharma and human health. Some analysts believe that separating the two businesses has the ability to create shareholder value. Also, it will help it deal with the Monsanto lawsuits, which we covered about here.

Further, Bayer is one of the cheapest companies in the industry. It trades at ~20% discount from its global peers, which makes it a good value stock. With bond yields rising and demand for value and dividend paying company is expected to remain high for a while. 

Bayer share price forecast

The 4H chart shows that the Bayer stock price made a down-gap after the weak forward guidance. As it crashed, the stock moved to the lowest point since the first week of February. It has moved below the 25-period and 50-period moving averages and the key support at 56.39 euros, the highest point on November 29.

Therefore, I suspect that this gap will take more time to be filled. As such, the next key point to watch will be the psychological point at 50 euros. The stop-loss of this trade will be at 57,50 euros.