Shares of the premium basic materials company, Syngenta AGSYT hit a fresh 52-week high of $88.83 per share on Sep 7, before closing the trading session slightly lower at $88.56. It has gained roughly 28.8% over the last one year. The company is currently trading at a forward P/E (price/earnings) of 26.07 and has a long-term earnings growth expectation of 6.75%.
However, regardless of such strong price appreciation, Syngenta currently holds a Zacks Rank #4 (Sell) owing to certain industry-specific headwinds.
Has the Stock Lost Momentum?
Since Syngenta closed negative on the very day it hit a 52-week high, we wonder why it topped out. It's because investors have locked in gains, resulting in trend reversals or pullbacks.
Moreover, Syngenta is already overpriced in the market given its P/E of 26.07, which is higher than the industry average of 21.10. As the stock is overvalued, its current price does not justify the earnings outlook. Hence, it is anticipated that its price will drop in the near term.
Apart from putting a strategic accelerating operational leverage (AOL) program into action, Syngenta views the $43 billion takeover bid extended by China National Chemical Corp. (ChemChina) to be extremely beneficial on commercial grounds. However, the deal has not been approved by the European Union yet, among other jurisdictions. Also, even if the deal successfully passes closes by the end of this year, there is still some time left for Syngenta to eye its payback.
Bleak Broader Trends
Syngenta conducts its trade within the agricultural products industry, broadly grouped under the Basic Materials sector as per the Zacks Industry classification. Our latest Earnings Trends article (dated Aug 19, 2016) confirms that the sector has largely underperformed the Q2 earnings season. Notably, the sector has witnessed a decline of 11.6% and 8.9% in earnings and revenues, respectively, in the second quarter.
Syngenta faces several industry specific headwinds such as economic slowdown in booming nations like China, a cyclical downturn of agricultural industry, unfavorable climatic conditions, low prices of agro products and extensive industry rivalry. These bearish aspects were responsible for the company's weak half-year 2016 results. Moreover, Syngenta's business is subjected to tight credit conditions in several niche marketplaces such as Argentina and Brazil.
Hence, we believe that investors will do well by currently avoiding Syngenta's stock. The company is relying largely on the ChemChina deal, which is far from generating benefits. Over the last 60 days, Zacks Consensus Estimate for the stock has been revised downwards for both 2016 and 2017.
SYNGENTA AG-ADR Price and Consensus
Some better-ranked stocks within the industry include Cosan Limited CZZ , Coeur Mining, Inc. CDE and AngloGold Ashanti Ltd. AU . All the companies currently carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
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