On Mar 21, 2015, Zacks Investment Research downgraded Syngenta AG SYT to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold) primarily due to an unfavorable business environment. Going by the Zacks model, companies holding a Zacks Rank #4 have strong chances of performing worse than the broader market.
Why the Downgrade?
Syngenta attempts to enhance its top-and-bottom-line results on the back of wider globalization in its business. However, the company’s international trade currently faces several market headwinds such as exchange rate fluctuations, socio-political turmoil and environmental issues. Further, the company remains highly dependent on singular-source deals for procuring raw materials. In case of non-renewal of contracts or inefficient supply from these vendors, the company will undergo supply disruption, which will lower its profitability in the near future.
As Syngenta generates more than 70% of revenues from its crop protection business, restriction in usage of genetically modified seeds in some countries is weakening its sales. Moreover, the company’s premature launching of the Viptera-modified corn trait remarkably lowered the market demand for U.S. corn in China, ultimately diminishing its global price. This, in turn, caused significant monetary damages for numerous corn exporters in the U.S. Following this event, Scott+Scott LLP, a U.S. law firm, sued Syngenta for contaminating the U.S. corn supply by commercializing its genetically tailored corn trait. Expenses involved with such lawsuits will likely lower the company’s margins in the upcoming quarters.
These factors, together, have caused the Zacks Consensus Estimate to move south over the last 60 days. The same declined 5.9% to $3.85 for 2015 as both estimates moved down, and by 9.1% to $4.18 for 2016 as one of two estimates moved south.
Other Stocks to Consider
Syngenta currently has a $31.41 billion market capitalization. Some better-ranked stocks in the industry include Cosan Ltd. CZZ, Air Products & Chemicals Inc. APD and Asanko Gold Inc. AKG. All three stocks hold a Zacks Rank #2 (Buy).
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