MT Insider: Goldman Drops Monsanto From Conviction Buy List After Q4 Earnings; Price Target Also Cut

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In a new research report out today, Goldman Sachs is removing Monsanto Co ( MON ) from its Conviction Buy List after the company reported weaker than expected Q4 earnings and provided below-consensus FY14 EPS guidance in addition to a $930 million acquisition expected to reduce earnings by around $0.14 per share during the next fiscal year.

Goldman said it was lowering its FY14 earnings estimates and also cut its 12- month price target by $14 to $110 a share, which equates to a 21.5x multiple. That said, the analyst is maintaining his Buy rating for the stock as well as his view MON is set up for a 15% to 20% jump in FY14 earnings.

Moreover, it is worth noting the company's acquisition of The Climate Corp is still in the early innings of its growth trajectory and is also seen supplementing MON core Seeds and Traits franchise.

The next likely catalyst for shares is the company's Investor Day in November, where analysts will key in on the proposed Climate Corp acquisition and its path to profitability. Analysts also will be examining the scale of the opportunity, according to Goldman.

As a recap from yesterday's MT Newswires, MON reported a Q4 operating loss of $0.47 per share, trailing consensus estimates by $0.06 per share.

The delta came from lower gross profits in the company's Soybean, Cotton and Vegetable segment, offset partially by strength in Agricultural Productivity. Total gross profit of $924 million rose 5% year over year, but still trailed Street expectations.

Separately, MON announced the acquisition of The Climate Corp for $930 million in cash in an effort to advance its Integrated Farming Systems platform.

According to the company, the acquisition will reduce 2014 EPS by around $0.14 per share with the start-up company not yet profitable. Its revenue base also is still small, with The Climate Corp in the early stages of a roll out.

On the call, investor Q&A largely focused on the acquisition. According to management, the acquisition will be "applicable immediately" (side bar: that does not equate to immediately accretive, as evidenced by dilution from the deal) with the deal not expected to become accretive for at least another two years (or until at least FY15).

MON issued initial FY2014 EPS guidance of $5.00-$5.20 (including $0.14 of acquisition dilution), which compares to consensus of $5.33 although the street's number does not include the acquisition. On the call, management also noted that Q1 2014 EPS would be "in the same EPS range to slightly up from 1Q13."

The company is trading at 20x earnings, in line with its median multiple, but at a premium to competitors Dow Chemical Company ( DOW ) at 14x, E.l. du Pont de Nemours ( DD ) at 14x, Bayer AG ( BAYRY ), and Syngenta Ag ( SYT ) at 16x, respectively.

MON 103.77 -0.27 -0.26

DOW 38.60 -0.10 -0.26

DD 58.29 -0.71 -1.20

BAYRY 117.99 +0.33 +0.28

SYT 80.30 -0.09 -0.11

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright (C) 2014 All rights reserved. Unauthorized reproduction is strictly prohibited.

This article appears in: Investing , Commodities

Referenced Stocks: BAYRY , DD , DOW , MON , SYT

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