Will Q3 Earnings Hold a Surprise for Monsanto (MON) Stock?

Monsanto Company MON is scheduled to report third-quarter fiscal 2016 results before the opening bell on Jun 29.

Let’s see how things are shaping up prior to this announcement.

Factors to Consider

Monsanto’s strategic inorganic investments, as well as initiatives toward greater innovation and product portfolio solidification are expected to have favorable impact on the quarterly revenues and earnings. Also, the company’s tactical restructuring efforts should enhance profitability.

Despite the positives the company remains exposed to certain macroeconomic risks. Negatives like economic slowdown in major emerging nations like China, cyclical downturn of agricultural industry, low prices of agro products, strengthening U.S. dollar and devaluating Argentinean Peso might overshadow some of the positive aspects. Based on these issues, the company had lowered its fiscal 2016 earnings guidance to the range of $4.40–$5.10 per share from the previous estimation of $5.10–$5.60.

Also, Monsanto usually undertakes strategic mergers and acquisitions to enhance its business. However, in an unusual turn of events the company was approached by Bayer AG in May 2016 with a proposed takeover bid. Though Monsanto rejected the $122 per share bid on grounds of being “insultingly low,” we expect the companies to engage in further negotiations going forward.

Notably, Monsanto’s shares have been on the rise since Apr 1, 2016 and have surged 25% to date. Moreover, Monsanto’s stock gained 1.86% to $109.15 per share on Jun 23, 2016 after its genetically modified soybeans’ (GMO) deal was successful with Argentina.

Earnings Whispers

Our proven model does not conclusively show that Monsanto will beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for an earnings beat. That is not the case here as we will see below.

Zacks ESP: Monsanto currently has an Earnings ESP of -3.73%. This is because the Zacks Consensus Estimate of $2.41 per share is pegged above the Most Accurate estimate of $2.32.

Zacks Rank: Monsanto has a Zacks Rank #3.

We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revision momentum.

Stocks to Consider

Here are some stocks that have the right combination of elements to post an earnings beat this quarter:

HB Fuller Co. FUL with an Earnings ESP of +1.43% and a Zacks Rank #2.

MAG Silver Corp. MVG with an Earnings ESP of +33.33% and a Zacks Rank #2.

PPG Industries, Inc. PPG with an Earnings ESP of +1.08% and a Zacks Rank #2.

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