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Analyst Blog

On Jul 4, we reiterated our Neutral recommendation on the agricultural chemicals company, Monsanto Company (MON - Analyst Report). The results of the company surpassed its year-ago performance. However, at the same time, its international presence exposes it to geo-political and financial risks.

Why the Reiteration?

Monsanto’s earnings in the fiscal third quarter of 2013 were $1.66 per share increasing 1.8% year over year on the back of improved revenues and margins. Revenues for the quarter increased 0.7% year over year to $4.2 billion, driven by an improvement in its global corn business.

Based on the results, management maintained its outlook for fiscal 2013, with earnings in the range of $4.50 - $4.55, indicating year-over-year growth of 20%. This rising business of the company is expected to continue in fiscal 2014 as well, with an expected rise in the corn seed portfolio pricing in fiscal 2014. The improved seed business in the United States also strengthens this belief.

Monsanto’s attempts to increase shareholders’ value also seem promising as it announced a $2 billion share repurchase plan recently.

The company’s presence in countries outside the United States exposes it to various risks such as foreign currency fluctuation, economic and socio-political risks, making it difficult for the company to operate smoothly.

For a company like Monsanto, an enormous amount is spent toward research and development. Such expenses may prove to be futile if government permits are not received in time.

Moreover, Monsanto’s business in Brazil still remains vague, leading to the possibility of a lower demand in the coming quarters as well. Moreover, the increased societal/government resistance to genetically modified crops and farmers’ reluctance to accept new products remain the major offsetting factors.

Other Stocks to Consider

Monsanto currently carries a Zacks Rank #3 (Hold). Some other companies in the sector which are performing well and carry a favorable Zacks Rank include Limoneira Company (LMNR - Snapshot Report), Gevo, Inc. (GEVO - Snapshot Report) and FMC Corp. (FMC - Analyst Report). All the companies carry a Zacks Rank #2 (Buy).

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