We reaffirmed our long-term Neutral recommendation on
) on Apr 10, 2013, as risk reward remains fairly balanced for the
stock at this juncture.
Why the reiteration?
Monsanto's earnings per share of $2.73 in fiscal second
quarter of 2013, reported on Apr 4, beat the Zacks Consensus
Estimate of $2.55 by 7.1%. The company's earnings also improved
19.7% year over year.
Monsanto generated revenues of $5.5 billion in the fiscal
quarter, an increase of 15.2%, driven by an improvement in its
global corn business. The revenues also surpassed the Zacks
Consensus Estimate of $5.3 billion by 2.8%.
Since the announcement of the results, most of the estimates
have moved upwards for fiscal 2013 and 2014. The current
consensus estimate for fiscal 2013 rests at $4.57, an increase of
0.43% over the last 30 days. For fiscal 2014, the current
estimate increased 1.73% to $5.27 per share, over the same time
Monsanto expects its corn business to continue expanding in
the coming quarters as well, especially in Brazil and Argentina.
Moreover, management is optimistic about the U.S. seed business
on the back of its fiscal second quarter performance and expects
fiscal 2013 to be one of the highest revenue earning years for
Its new multi year licensing deal with
E. I. du Pont de Nemours and Company
) and the acquisitions of private firms, Agradis Inc. and Rosetta
Green are expected to help accelerate earnings growth in the
Monsanto, however, operates in an industry which is chiefly
characterized by strong competition; this in turn forces Monsanto
to come up with high yielding varieties over time. The attempt to
do so calls for a rise in the cost of production. Moreover, the
company's third party dependence for seeds supply may raise
Moreover, the increased societal/government resistance to
genetically modified crops and farmers' reluctance to accept new
products remain the major offsetting factors.
Other Stocks to Consider
Monsanto currently carries a Zacks Rank #2 (Buy). Other stocks
worth a look in the agricultural chemicals industry are
CVR Partners LP
The Andersons Inc.
); carrying a Zacks Rank #1 (Strong Buy) and a Zacks Rank #2
ANDERSONS INC (ANDE): Free Stock Analysis
DU PONT (EI) DE (DD): Free Stock Analysis
MONSANTO CO-NEW (MON): Free Stock Analysis
CVR PARTNERS LP (UAN): Free Stock Analysis
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