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Monsanto (MON) Downgraded to Sell on Predominant Headwinds

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On Apr 9, Zacks Investment Research downgraded Monsanto Company to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold). Going by the Zacks model, Zacks Rank #4 companies will possibly perform weaker than the broader market over the next one to three months.

Over the last month, Monsanto’s shares lost 4.3%, wider than the 2.3% loss incurred by the industry.



What’s Troubling the Stock?

The ripple effect of the ongoing trade tensions between the United States and China has triggered fears across the U.S. farm belt. After slapping tariffs on more than $3-billion U.S. exports on Apr 2, Beijing announced its plan to levy 25% tariffs on more than 106 types of U.S. exports on Apr 4, including agricultural products such as soybean, corn, and durum wheat.  

The U.S. Department of Agriculture predicts that its farm income this year will slide to the lowest level since 2006. Notably, China’s recently-announced charges, if imposed, will drag down the income of U.S. farmers.

Lower income will hit the seed and chemical product-purchasing decisions of the U.S. farmers, thereby affecting demand for products offered by companies like Monsanto.

Moreover, Monsanto reported weaker-than-expected results for second-quarter fiscal 2018 (ended February 2018). The company noted that the downtrend primarily stemmed from reduced corn volumes, soft corn pricing and reduced planted acreage in the United States. Persistence of these issues might continue to dent Monsanto’s results in the upcoming quarters.

Furthermore, headwinds such as stiff rivalry in the global seeds, traits and agricultural chemical industry, unfavorable climate conditions or increased societal/government resistance to genetically modified crops remain major causes of worry for Monsanto.

Monsanto intends to boost its competency and generate advanced business opportunities on the back of Bayer AG’s (BAYRY - Free Report) $66-billion buyout deal (September 2016).

However, there is a huge possibility that the regulatory authorities might not approve the deal on antitrust grounds.

Stocks to Consider

Two better-ranked stocks in the Zacks Basic Materials sector are listed below:

Cabot Corporation (CBT - Free Report) carries a Zacks Rank of 2 (Buy). The company has pulled off an average positive earnings surprise of 3.68% in the last four quarters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Schnitzer Steel Industries, Inc. , which carries a Zacks Rank of 2, recorded an average positive earnings surprise of 0.53% during the same time frame.

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See More Zacks Research for These Tickers


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Bayer Aktiengesellschaft (BAYRY) - free report >>

Cabot Corporation (CBT) - free report >>

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