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Analyst Blog

On Oct 7, 2016, we issued an updated research report on premium agro-chemical firm Monsanto Company (MON - Free Report) .

Monsanto reported earnings of 7 cents per share (on an ongoing basis) in fourth-quarter fiscal 2016 (ended Aug 31, 2016). The company believes that its results are being hurt due to existence of several headwinds including drop in commodity prices. Given that incomes of farmers are directly related to agro-product prices, lower prices have been reducing farmers’ income and adversely affecting their seed and chemical product purchasing decisions.

At this stage, companies within the global seeds, traits and agricultural chemical industry are banking on the strategy of consolidation. While E. I. du Pont de Nemours and Company (DD - Free Report) and The Dow Chemical Company (DOW - Free Report) inked a $130-million merger deal in 2015, Syngenta AG (SYT - Free Report) agreed to be bought by ChemChina for $43 billion in Feb 2016. The antitrust authorities have not yet not approved the two deals.

In addition to dismal pricing conditions, a stronger U.S. dollar or unhealthy industry rivalry might weigh on Monsanto’s revenues and earnings in the quarters ahead. Further, unfavorable climatic conditions or any new government restriction introduced on the usage of genetically modified crops might pose issues for the company in the near term.

At this moment, Monsanto pins hopes on Bayer AG’s (BAYRY - Free Report) all-cash $66-billion buyout deal. However, the deal has not gained any regulatory sanction yet, hence it is still far from eyeing any success.

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