Initiating S&W Seed at Outperform

S&W Seed Company (SANW - Analyst Report) has just completed its initial public offering. The IPO raised $14.4 million and there are 5.8 million shares outstanding.

S&W Seed is a profitable developer of drought- and salt-resistant alfalfa seed varieties. The company has unused processing capacity that, when utilized, provides significant operating earnings leverage. We estimate that earnings could grow at 25%, compounded over the next three years.

S&W Seed has launched a pilot program to produce Stevia leaf that is used to make a natural, non-caloric sweetener. This is a rapidly growing market with a large potential for commercial development of varieties that will grow in California.

PureCircle, the world's largest producer of Stevia sweeteners, has an agreement with S&W Seed to grow Stevia plants in California using proprietary plant material from PureCircle. These plants are currently under cultivation and will be used to identify the best yielding varieties for commercial production of Stevia leaf by S&W Seed.

S&W Seed has received the first purchase order from Genetics International for alfalfa seeds to be sold in Sudan. Genetics International has a long-term relationship with S&W Seed, is a seller of S&W Seed alfalfa seeds in the Middle East and has a license from the US State Department to sell agricultural products in Sudan. The order should be shipped in July, 2010.

We are initiating coverage of S&W Seed with an Outperform rating and $6 price target. For additional information, please see our research report or contact your Zacks Institutional Sales representative.

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