We issued an updated research report on Monsanto Company MON on Apr 9, 2015. The company, along with its subsidiaries, is a prominent provider of agricultural products in the global forum. However, as certain external issues have been troubling the company’s commercial affairs lately, investors are keen to evaluate Monsanto’s second-quarter fiscal 2015 results.
Problems to Consider
Monsanto’s trade is highly sensitive to cyclical fluctuations of the global agro-industry. At times of poor crop yield, the company’s top line figures drop remarkably. For instance, decrease in U.S. corn production posed a major challenge for Monsanto. This agricultural stock is also exposed to risks associated with foreign currency-fluctuations, operational hazards, changes in economic conditions and governmental policies. Moreover, the company encounters stiff business rivalry from its peers in the industry such as DuPont and Syngenta AG. In addition, the company is often involved in unhealthy price wars with its business competitors.
Worthwhile Growth Opportunities
However, in spite of these headwind-related issues, Monsanto remains firm in its target to double its earnings per share growth by 2019. The company’s optimistic outlook is backed by the current growth opportunities available in its business. Increasing global population, rising proportion of middle-income group consumers and improving individual dietary habits are some aspects that are steadily enhancing demand for agricultural products. This, in turn, is increasing the sale of Monsanto’s products that help improve crop yield.
Further, an increase in soybean productivity will likely enhance the company’s sales in the near future. Also, recent decline in the price of energy resources is reducing the company’s market expenses. At the same time, Monsanto holds a high brand status in the global modified seeds market. Driven by an innovation-based growth strategy, the company introduces unique product and process technologies to help lower input costs and increase crop yield.
Based on these mixed factors, estimate revisions for the stock have largely remained unchanged over the last 30 days. However, we believe Monsanto’s firm commitment toward increasing its shareholders’ value will retain investors’ confidence in the stock to some extent. Furthermore, benefits reaped from success of growth plans as well as product or process-based innovations are expected to offset the negative impact of headwinds, going forward.
With a market capitalization of $55.77 billion, Monsanto Company carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Anglo American Platinum Limited AGPPY, Asanko Gold Inc. AKG and Akzo Nobel NV AKZOY. All three stocks hold a Zacks Rank #2 (Buy).
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