Monsanto Company (MON), Agrium Inc. (AGU): Why This Stock Is Poised to Hit a New High Next Week

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It’s been a matter of days since Monsanto Company (NYSE:MON)’s stock hit a new high. The seed giant’s top and bottom line growth last year were far better than that of its peers, and the company also sports solid financials.

The already bullish markets might just get another reason to pump Monsanto’s shares up even further next week when the company turns up with its second-quarter numbers. Analysts are looking at 13% higher earnings per share on 11.5% increased revenue. I am not ruling out a beat from a company that has had a fairly good history of earnings surprise.

Monsanto Company (MON)

It’s a critical quarter

In front of the 21% and 169% jump that Monsanto reported in its revenue and net profit, respectively, in its first quarter the Street’s expectations appear pretty muted. Especially since Monsanto Company (NYSE:MON)’s second quarter coincides with one of its most critical selling seasons, and it had already made a good start in the first quarter.

The period from December to February, which also represents Monsanto’s second quarter, is when farmers in the U.S. buy seeds in preparation of the upcoming spring planting season. Monsanto wasn't the only one that reported heavier pre-spring orders this year--peers E I Du Pont De Nemours And Co (NYSE:DD) and Agrium Inc. (NYSE:AGU) confirmed it as well. Agrium, which derived more than half its sales from seeds and crop nutrient and protection products last year, reported a 10% increase in seed bookings year to date. It also expects higher product prices this year, which should push up revenue further. Revenue from its North American seed business grew 16% in 2011 and 11% in 2012.

Industry farm reports are equally inspiring. According to a recent Farm Futures survey, farmers in the U.S. are looking at record corn as well as soybean planting this spring. News from Reuters also suggests that in some key crop growing areas like Louisiana and Texas, corn seeding is well above last year’s level. After the ravaging drought last year, this was expected.

When a dry spell can be good

The drought, in fact, is one reason why Monsanto Company (NYSE:MON)’s sales could have gone up in the second quarter. It gives a bigger opportunity to the company to promote its hybrids and incentivize farmers to be on the safe side by opting for products that can withstand extreme temperatures. In fact, this race is already at its peak.

Apart from fungicides targeting the U.S. planting season, DuPont has lined up 44 Optimum AQUAMax hybrids for the U.S. this year in a bid to double their penetration of the market. A report on Agweb.com even suggests that DuPont’s corn and soybean seeds were planted across a larger number of acres than Monsanto’s in 2010 and 2011. Half of DuPont’s research and development expenditure in 2012 went towards its agriculture business, which in turn emerged as its biggest and top performing units with nearly 30% contribution to total sales.

Likewise, though agricultural sciences made up just 11% of The Dow Chemical Company (NYSE:DOW)’s total sales last year, it was the only segment where sales grew 13% to hit a record when other businesses failed to deliver. It helped Dow’s share in the U.S. corn market to hit 8%. Little wonder that agriculture is featured among Dow’s priority businesses for this year and beyond. Its targeted 2013 spring launch of Enlist herbicide has been delayed by a year on protests, but its multiple-crop insecticide Sulfoxaflor should be on schedule for launch this year following recent proposals by the U.S. Environmental Protection Agency.

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