On Jan 15, 2014, we retained our Neutral recommendation on
). While we see bright prospects for the company based on its
inorganic growth, we cannot overlook the huge research and
development (R&D) expenditure Monsanto has to undertake.
Why the Retention?
Monsanto is a leading provider of agricultural chemicals, and
operates in two segments, Seeds and Genomics and Agricultural
Productivity. The company has been successfully attempting to
gain a greater market share, through acquisitions and product
With the growing population, the need for farmers to produce
more from the available resources has become prominent. In these
cases, farmers tend to use productive chemicals to increase the
yield. Additionally, Monsanto has strong cash and cash
equivalents balance, which it intends to utilize for share
buybacks, thereby increasing shareholders' value.
However, the considerable time spent and massive expenses
incurred due to R&D activities make the products high priced,
thereby exposing the company to major price competition from
local generic companies. Monsanto's overseas operations expose it
to foreign currency fluctuation risks. Further, the foreign
operational hazards including changes in local, political or
economic conditions; governmental policies and pricing
directives; as well as import and trade restrictions in foreign
nations add to the peril.
A glimpse of the fiscal first-quarter 2014 results clearly
depicts favorable company performance in the quarter. Monsanto's
earnings per share were 67 cents in the quarter, up from the
Zacks Consensus Estimate of 63 cents. Revenues were up 7% year
over year to $3,143.0 million, largely as a result of growth in
the Agricultural Productivity segment. In the quarter, gross
margin expanded 200 basis points year over year to 50%.
The Zacks Consensus Estimate for Monsanto currently stands at
$5.25 per share for fiscal 2014 and $6.05 for fiscal 2015,
reflecting year-over-year growth of 15.2% and 15.1%,
Other Stocks to Consider
With a Zacks Rank #3 (Hold), Monsanto currently has a market
capitalization of $59.4 billion. Some better-ranked stocks in the
Gruma S.A.B. de CV
Sensient Technologies Corporation
Quaker Chemical Corporation
). While Gruma carries a Zacks Rank #1 (Strong Buy), Sensient
Technologies and Quaker Chemical Corp. hold a Zacks Rank #2
GRUMA SA-ADR B (GMK): Free Stock Analysis
QUAKER CHEMICAL (KWR): Free Stock Analysis
MONSANTO CO-NEW (MON): Free Stock Analysis
SENSIENT TECH (SXT): Free Stock Analysis
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