On Jun 14, 2013, we reaffirmed our long-term Neutral recommendation on Syngenta AG (SYT - Analyst Report) as risk reward remains fairly balanced for the stock at this juncture.
Why the Reiteration?
Syngenta reported improved year over year sales for the first quarter of 2013, with sales increasing 6% to $4.6 billion. The increase in total revenue was helped by a rise in revenues across most regions, viz., Latin America, Eastern Europe and Southeast Asia. Increased prices in both Crop Protection and Seeds business segments also boosted revenues.
It has now become a trend for agricultural companies to keep launching newer products at regular intervals in order to stay ahead of their competitors. Syngenta received an approval for its rootworm control technology, Agrisure Duracade, in the reported quarter, and is expected to launch the same in 2014. Syngenta maintains long-term sales growth target of 8.0%, which it expects to be hurt by higher seed production costs.
Additionally, Syngenta focuses on acquisitions to enhance its technologies, product offerings and to gain a greater market share. In 2012, the company completed several acquisitions, the major ones being the acquisitions of Devgen N.V., DuPont’s insecticide business; Pasteuria Bioscience Inc. and Sunfield Seeds Inc. All these acquisitions are expected to contribute significantly to the revenue.
However, we cannot overlook the fact that agricultural companies are exposed to a number of environmental and safety risks, which increase the costs for these companies and Syngenta is no exception. Moreover, the time and resources involved in the innovations may sometimes prove to be futile.
Other Stocks to Consider
Syngenta currently carries a Zacks Rank #3 (Hold). Some agricultural products companies worth a look are American Vanguard Corp. (AVD - Snapshot Report), which carries a Zacks Rank #1 (Strong Buy); while Cosan Ltd. (CZZ - Analyst Report) and Limoneira Company (LMNR - Snapshot Report) both carry a Zacks Rank #2 (Buy).