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

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.

Through these agreements, DuPont Pioneer will be able to offer Genuity Roundup Ready 2 Yield soybeans as early as 2014, and Genuity Roundup Ready 2 Xtend glyphosate and dicamba tolerant soybeans as early as 2015, pending regulatory approvals.

DuPont Pioneer will receive regulatory data rights for the soybean and corn traits previously licensed from Monsanto Company (NYSE:MON), enabling it to create a wide array of stacked trait combinations using traits or genetics from DuPont Fabros Technology, Inc. (NYSE:DFT) Pioneer or others. Monsanto will receive access to certain DuPont Pioneer disease resistance and corn defoliation patents.

Monsanto’s peers also optimistic about 2013

American Vanguard Corp. (NYSE:AVD), one of Monsanto’s chief competitors in herbicides, is optimistic about the year and feels that it is well placed to meet the increasing demand for soil insecticide. It intends to do this by maintaining full production of its products and proprietary equipment systems. The successful roll out of its herbicide co-marketing program with Monsanto is also expected to support its results.

American Vanguard witnessed a healthy rise in its fourth-quarter 2012 profit on the back of continued strong market demand for its products. For full year 2012, earnings climbed to $1.28 per share from $0.79 per share in 2011, topping the Zacks consensus estimate of $1.22.

Profits soared roughly 77% year-over-year to $11.3 million in the quarter, buoyed by healthy demand for American Vanguard’s crop protection products. American Vanguard Corp. (NYSE:AVD) is leveraging the growing demand for soil insecticides as the U.S. corn growers contend with pest problems. American Vanguard currently carries a Zacks’ “rank number three,” or hold rating.

Canada-based Agrium Inc. (USA) (NYSE:AGU), a leading global wholesale producer and marketer of all major agricultural nutrients and a premier supplier of specialty fertilizers, recently declared a quarterly dividend, which is scheduled for Thursday, April 18. The management seems confident about its financial performance this year.

Agrium recently reported Q4 adjusted EPS of $2.16, beating consensus estimates of $2 per share by 8%. Net earnings jumped to $354 million, or $2.34 per share, from $193 million, or $1.20 per share in 2011. Sales in the most recent quarter rose 3% to approximately $3.3 billion. According to Thomson Reuters, analysts on average expected Agrium Inc. (USA) (NYSE:AGU) to generate sales of $3.2 billion.

Canaccord Genuity trimmed its price target on Agrium from $127 to $123, according to a a research report sent to investors, Stock Ratings Network reports. Canaccord Genuity currently has a “buy” rating on the stock.


The long-term prospects for Monsanto Company (NYSE:MON) remain undoubtedly good. Monsanto ended its second quarter with approximately $4.8 billion in cash, equivalents, and short-term investments. The company operates with $2.2 billion in short-term and long-term debt, for a net cash position of approximately $2.5 billion. Monsanto currently pays a quarterly dividend of $0.38 per share, for an annual dividend yield of 1.4%.

Anindya Batabyal has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.