On Oct 8, 2013, we reiterated our Neutral recommendation on Monsanto Company ( MON ), based on mixed result for the fourth quarter of fiscal 2013.
Why the Retention?
Monsanto is a leading global provider of agricultural products. The company's research and development (R&D) line-ups in molecular-bred hybrid technologies as well as technical collaboration with agri-business research firms continue to support sustainability and modernization in cropping pattern for long-term growth. With the Intacta technology gaining momentum in Brazil and Argentina, we expect Monsanto to be able to generate higher revenues in the coming quarters.
Additionally, Monsanto has strong cash and cash equivalents balance, which the company intends to utilize for share buybacks, thereby increasing shareholders' value. The proposed acquisition of The Climate Corporation also strengthens our belief on the company's future. The integration of Climate's technology will help Monsanto to expand its Integrated Farming Systems platform along with expanding the R&D pipeline.
However, the company incurs massive time and expenses toward R&D activities, which makes them high priced, thereby exposing the company to major price competition from local generic companies.
Monsanto's overseas operations expose it to foreign currency fluctuation risk. 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. Moreover, the increased societal/governmental 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 #3 (Hold). Other stocks worth a watch in the industry include Limoneira Company ( LMNR ), Ferro Corp. ( FOE ) and Air Products & Chemicals Inc. ( APD ). While Limoneira and Ferro Corp. carry a Zacks Rank #1 (Strong Buy), Air Products & Chemicals carries a Zacks Rank #2 (Buy).