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Analyst Blog

On Jul 30, 2013, we reiterated our Neutral recommendation on Syngenta AG (SYT - Analyst Report) based on its modest first-half 2013 performance.

Why the Reiteration?

Syngenta reported improved year-over-year revenues for the six months ended Jun 30, 2013, although net income declined. The company’s seed care business staged an improvement, increasing Crop Protection revenues by 7% year over year in the first half of 2013.

Syngenta’s inorganic growth helped a great deal. It recently announced its plans to acquire the Zambia-based privately-held MRI Seed Zambia Ltd and MRI Agro Ltd. The acquisitions will help Syngenta gain market share in the white corn business and generate roughly $1.0 billion in additional revenue in Africa by 2022. Moreover, last year, the company completed several acquisitions, some of which include, Devgen N.V., DuPont’s insecticide business, Pasteuria Bioscience Inc. and Sunfield Seeds Inc.

The company also has a strong balance sheet. Leveraging its strong financial position, Syngenta makes a rigorous effort to increase shareholders’ value through a progressive dividend pay-out policy and share repurchases. In the first half of 2013, the company’s total dividend payments increased 13.5% year over year (in U.S. dollars).

However, on the flip side, it cannot be ascertained beforehand if an invention will be successful or not. Moreover, there is a possibility of competitors launching a similar product before Syngenta, thereby hampering its margins.

The company is also exposed to a number of environmental, health and safety laws with regard to the invention and marketing of products. This increases the risk of legal as well as compliance costs. Furthermore, disposal of wastes from its facilities increases the company’s operating risks and continue to be drag on its profitability.

Other Stocks to Consider

Syngenta currently carries a Zacks Rank #3 (Hold). Other stocks worth reckoning in the chemical industry include The Andersons, Inc. (ANDE - Analyst Report), KMG Chemicals Inc. (KMG - Snapshot Report) and Limoneira Company (LMNR - Snapshot Report). Each of these companies carry a Zacks Rank #2 (Buy).

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