Buy Monsanto Company (MON): It Has Solid Long-Term Prospects

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Monsanto Company (NYSE:MON), the world’s biggest seeds company, announced impressive quarterly results in recent weeks, with the country’s agricultural prospects gradually improving.

US farmers have a tall order this year. Rick Tolman, the National Corn Growers Association CEO, believes global demand for US corn puts pressure on America’s farmers to grow a big crop. “We had a once-in-50-year drought. We don’t expect that to happen again. In fact, we think we’ll be outproducing the market really quickly,” Tolman says.

Monsanto Company (NYSE:MON)

The annual spring outlook from the National Oceanic and Atmospheric Administration (NOAA) predicted hotter, drier conditions across much of the US, including parts of Texas, Oklahoma and Kansas, where farmers have been fighting to hang on to winter wheat crops. However, the three-month forecast noted an additional hazard for the Midwest, with heavy, late snows setting up conditions for flooding along the Red and Souris Rivers in North Dakota.

“It’s a mixed bag of flooding, drought and warm weather,” said Laura Furgione, the deputy director of NOAA’s weather service.

Monsanto’s earnings per share and revenue

The company reported $2.73 EPS for the fiscal second quarter, beating the Thomson Reuters consensus estimate of $2.58 EPS by $0.15. The company had revenue of approximately $5.5 billion for the quarter, compared to consensus estimates of about $5.3 billion.

During the same quarter in the prior year, the company posted $2.28 earnings per share. The company’s quarterly revenue rose 15.2% on a year-over-year basis. Chairman and CEO Hugh Grant commented on the performance during the quarter:

Our performance underscores our expectations for a third consecutive year of strong earnings growth and reinforces our opportunities for the future as well.

Analysts at Citigroup Inc (NYSE:C) raised their price target on Monsanto Company (NYSE:MON) shares from $110 to $122, according to a research note to investors. They now have a “buy” rating on the stock. Wells Fargo & Co (NYSE:WFC) analysts similarly turned more bullish on the stock, and raised their price target on shares of Monsanto to $120, according to a research report issued to clients. In this article I will focus on the strengths of Monsanto’s stock.

Monsanto’s earnings highlights

The rise in quarterly earnings was led by corn seed, for which sales alone rose 16.5% to approximately $3.3 billion. The increase “was driven in part by the conclusion of a successful and record second safrinha season in Brazil, where the company continued to achieve strong demand for its latest corn products,” Monsanto said in its report.

Revenue from soybeans fell 17.7% to $677 million, where Monsanto Company (NYSE:MON) is in the midst of a long-running legal dispute in Brazil over the patent surrounding its Roundup Ready varieties.

Sales at Monsanto’s agricultural productivity division, which sells Roundup herbicides, rose 37% to $1.1 billion.

Monsanto lifts EPS forecast based on strong demand

Monsanto lifted its forecast for full-year earnings for a second time as it unveiled quarterly earnings and revealed a strong start to the important US spring sowing season. The company raised its EPS forecast to a range of $4.40 to $4.50 from previous guidance of $4.30 to $4.40 for the year.

Monsanto Company (NYSE:MON) expects another year of strong performance in corn. With US farmers currently expected to plant some 97 million acres with corn this year, Monsanto’s target implies a market share of nearly 40%.

In its advanced Genuity Roundup Ready 2 Yield soybeans, Monsanto forecast it was on track to achieve sales equivalent to the “high end” of its target of 39 million to 41 million acres, in sowings terms.

DuPont and Monsanto reach technology licensing agreements

DuPont Fabros Technology, Inc. (NYSE:DFT) and Monsanto recently announced a series of technology licensing agreements that will expand the range of seed products they can offer farmers. The agreements include a multi-year, royalty-bearing license for Monsanto’s next-generation soybean technologies in the US and Canada.
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