Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Earnings Analysis: Monsanto Co. (NYSE:MON)

Monsanto Company (NYSE:MON) recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please

Monsanto Co.’s analysis versus peers uses the following peer-set: BASF SE (PINK:BASFY), E I Du Pont De Nemours And Co (NYSE:DD), The Dow Chemical Company (NYSE:DOW), Syngenta AG (NYSE:SYT), Archer Daniels Midland Company (NYSE:ADM), CF Industries Holdings, Inc. (NYSE:CF), Bunge Limited (NYSE:BG) and FMC Corporation (NYSE:FMC). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Earnings Analysis: Monsanto Co. (NYSE:MON)

Valuation Drivers

Monsanto Co.’s current Price/Book of 3.9 is about median in its peer group. The market expects more growth from MON-US than the median of its chosen peers (PE of 23.5 compared to peer median of 15.2) and to improve its current ROE of 17.3% which is around peer median.

The company’s relatively high profit margins (currently 15.1% vs. peer median of 8.8%) are burdened by asset inefficiency with asset turns of 0.7x compared to the peer median of 0.9x. Overall, this suggests a margin driven operating model relative to its peers. MON-US’s net margin continues to trend upward and is above (but within one standard deviation of) its five-year average net margin of 14.1%.

Economic Moat

Changes in the company’s revenues are in-line with its peers (annual revenue changed by 14.2%) but its earnings performance has been better — its annual earnings changed by 27.0% compared to the peer median of 17.4%, implying that it has better cost control relative to its peers. MON-US currently converts every 1% of change in revenue into 1.9% of change in annual reported earnings.

MON-US’s return on assets is above its peer median both in the current period (10.2% vs. peer median 8.4%) and also over the past five years (9.9% vs. peer median 7.3%). This performance suggests that the company’s relatively high operating returns are sustainable.

The company’s comparatively healthy gross margin of 56.4% versus peer median of 31.8% suggests that it has a differentiated strategy with pricing advantages. Further, MON-US’s bottom-line operating performance is better than peer median (pre-tax margins of 22.1% compared to peer median 11.4%) suggesting relatively tight control on operating costs.

Growth & Investment Strategy

While MON-US’s revenues growth has been around the peer median in recent years (5.0% vs. 4.3% respectively for the past three years), the market gives its shares a higher than peer median PE ratio of 23.5. The market seems to see faster growth ahead.

MON-US’s annualized rate of change in capital of 6.0% over the past three years is less than its peer median of 9.2%. This investment has generated a peer median return on capital of 12.1% averaged over the same three years. The median return on capital investment on a relatively lower investment suggests that the company is under investing.

Earnings Quality

MON-US has reported relatively strong net income margin for the last twelve months (15.1% vs. peer median of 8.8%). This margin performance combined with relatively high accruals (7.5% vs. peer median of 2.8%) suggests possible conservative accounting and an understatement of its reported net income.

MON-US’s accruals over the last twelve months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median — which suggests a relatively strong buildup in reserves compared to its peers.

Trend Charts

Graph of Revenues Trend for Monsanto Co. (NYSE:MON)
Graph of Revenues Trend for Monsanto Co. (NYSE:MON)
Graph of Net Margin Trend for Monsanto Co. (NYSE:MON)
Graph of Net Margin Trend for Monsanto Co. (NYSE:MON)
Graph of Accruals Trend (% revenues, Quarterly) for Monsanto Co. (NYSE:MON)
Graph of Accruals Trend (% revenues, Annual or TTM) for Monsanto Co. (NYSE:MON)

Company Profile

Monsanto Co. distributes agricultural products to farmers, including crop-protection chemicals, herbicide, seeds improved through biotechnology. It operates its business through two segments namely: Seeds and Genomics and Agricultural Productivity. Through its Seeds and Genomics segment, the company produces seed brands, including DEKALB, Asgrow, Deltapine, Seminis, and De Ruiter and it develop biotechnology traits that assist farmers in controlling insects and weeds. The Agricultural Productivity manufactures Roundup and Harness brand herbicides and other herbicides. It also provides other seed companies with genetic material and biotechnology traits for their seed brands. The company was founded by John F. Queeny in 1901 and is headquartered in St. Louis, MO.


The information presented in this report has been obtained from sources deemed to be reliable, but AnalytixInsight does not make any representation about the accuracy, completeness, or timeliness of this information. This report was produced by AnalytixInsight for informational purposes only and nothing contained herein should be construed as an offer to buy or sell or as a solicitation of an offer to buy or sell any security or derivative instrument. This report is current only as of the date that it was published and the opinions, estimates, ratings and other information may change without notice or publication. Past performance is no guarantee of future results. Prior to making an investment or other financial decision, please consult with your financial, legal and tax advisors. AnalytixInsight shall not be liable for any party’s use of this report. AnalytixInsight is not a broker-dealer and does not buy, sell, maintain a position, or make a market in any security referred to herein. One of the principal tenets for us at AnalytixInsight is that the best person to handle your finances is you. By your use of our services or by reading any our reports, you’re agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that AnalytixInsight, its directors, its employees, and its agents will not be liable for any investment decision made or action taken by you and others based on news, information, opinion, or any other material generated by us and/or published through our services. For a complete copy of our disclaimer, please visit our website
This article was originally written by abha.dawesar, and posted on CapitalCube.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.