MON Market Research & Analysis Report
Updated Jan 26, 2016

Monsanto Company (MON)

Trade Rationale:

Monsanto Company (MON) has demonstrated a pattern of bearish technical signs the company has beat two and missed two of the last five analyst’s earnings estimates. Monsanto Company failed to impress investors with the quarterly earnings and faces high debt exposure. Our overall score for MON is 4.75.

Stock Price Trends

Market cap 38.82B
Yesterday's close $87.32
52-weeks range $81.22 – $126.00
Technical analysis Bearish

MON Score: 4.75

Intrinsic value of the stock 8
Financials 6
Sentiment 6
Analyst ratings 8
Earnings Consistency 7
Total Debt/Equity 2
Quarterly EPS change 2
Annual Earnings Growth 7
Current Price Level 2
P/E Ratio 3
Insider Ownership 3
Technical Analysis 3
Sector:Basic Materials
Industry:Agricultural Chemicals

Growth and Balance Sheet

Monsanto Company (MON) delivered earnings per share (EPS) for the first quarter ahead of expectations as operating expenses and soybean sales in Brazil both were better than original expectations for the first quarter of fiscal year 2016. Net sales for the quarter decreased over the prior year’s first quarter to $2.2 billion. Gross profit on an as-reported basis for the 2016 first quarter also decreased over the prior year period to $901 million. As expected, the decline in the quarter is due to weaker foreign currencies, glyphosate pricing and lower corn volumes in Latin America.

Selling, general and administrative (SG&A) costs were $543 million and R&D expenses were $364 million for the quarter. Total operating expenses for the quarter, excluding pre-tax restructuring charges of $266 million, were nine percent lower than the prior year, mostly driven by currency.

The company’s first quarter EPS was a loss of $0.11 on an ongoing basis, ahead of the company’s outlined guidance of a loss in the range of $0.23 to $0.33. This improvement was driven by lower than expected operating expenses and higher than expected Brazil Intacta RR2 PRO™ soybean results. The company’s first quarter EPS was a loss of $0.56 on an as-reported basis, which was better than its outlined guidance of a loss in the range of $0.86 to $1.13. As-reported results include $0.46 for restructuring charges, driven by the finalization of the company's plans to reach its previously outlined target of $500 million of annual savings by the end of fiscal year 2018.

With the anticipated continuation of several global and industry headwinds that include the recent currency devaluation in Argentina, Monsanto expects full-year ongoing EPS guidance to be at the lower half of the range of $5.10 to $5.60. Ongoing EPS guidance reflects in part an estimated $0.60 to $0.70 of headwinds from currency, greater than previous estimates of $0.35 to $0.40. Full-year EPS guidance on as as-reported basis improved modestly to $4.12 to $4.79 as a result of the anticipated timing of charges related to announced restructuring actions.

Valuation

Monsanto Company (MON) P/E stands at 22.93 above the industry average of 17.00, and above the S&P 500 average of 17.45 The company is currently trading above the maximum P/E ratio of 15x, and over the last five years, the company’s shares have traded in the range of 20.70x to 33.70 trailing 12-month earnings. MON's current Price/Sales of 2.67 is above the average of its industry of 0.95. MON’s head to head comparison to its main competitors shows that the company has gross margin above the peer average, and one that is below the industry average. The achieved operating margin of the company is below the average operating margin of the selected competitors, and it is above the industry average. The quarterly revenue is above the industry average and above its main competitors. The stock is currently trading below its intrinsic value of $102.06 this suggests that the stock is undervalued at these levels. The beta of 1.15 implies higher volatility of the stock with respect to the S&P 500. MON has shown positive earnings consistency over the last five years. Company’s earnings have increased by 19.09% over the same period. The current quarter earnings in comparison to the same quarter last year are -223.40%. MON’s Total Debt/Equity of 273.31 is negative. MON’s current price levels are below the maximum level, is trading 44.2% below the 52 week high of $126.00, and the technical analysis give a bearish view of the stock. The majority of analyst ratings are bullish. MON dividend yield stands at 2.40% with payout ratio at 52.95%. 

About MON

Monsanto Company, together with its subsidiaries, provides agricultural products for farmers worldwide. It operates in two segments, Seeds and Genomics, and Agricultural Productivity. The company markets its products through distributors, independent retailers and dealers, agricultural cooperatives, plant raisers, and agents, as well as directly to farmers. Monsanto Company has a collaborative agreement with Novozymes to discover, develop, and produce microbial solutions. The company was formerly known as Monsanto Ag Company and changed its name to Monsanto Company in March 2000. Monsanto Company was founded in 2000 and is headquartered in St. Louis, Missouri.

Competitor Comparison

MON SYT Industry
Market Cap 38.82B 32.83B 2.32B
Employees 22.5 28 981.00
Qtrly Rev Growth -0.23 -0.10 0.17
Revenue 14.35B 14.26B 2.74B
Gross Margin 0.55 0.47 0.31
EBITDA 4.36B 2.78B 104.57
Operating Margin 0.25 0.16 0.07
Net Income 1.79B 1.45B N/A
EPS 3.85 3.15 0.42
P/E 22.93 22.70 17
PEG 1.74 N/A 1
P/S 2.68 2.27 0.95

Monsanto Company (MON) N.V.

Valuation
Market Cap 38.82B
Enterprise Value 45.89B
P/E 22.93
PEG Ratio 1.74
Price/Sales 2.68
Price/Book 10.8
EV/Revenue 3.2
EV/EBITDA 10.53
Dividend Yield 2.40%
Held by insiders 0.27%
   
MON
Beta 1.15
1 Month Stock Returns -11.49%
Year to Date Stock Returns -10.82%
1 Year Stock Returns -24.54%
3 Year Stock Returns -3.55%
52-Week Change -26.39%
S&P500 52-Week Change -7.51%
52-Week High 126
52-Week Low 81.22
50-Day Moving Average 94.9
200-Day Moving Average 95.45

Highlights

Through the Company's Seeds and Genomics segment, it produces seed brands, including DEKALB, Asgrow, Deltapine, Seminis and De Ruiter, and it develops biotechnology traits that assist farmers in controlling insects and weeds. The Company’s row crop seeds brands include DEKALB, Channel Bio, Asgrow and Deltapine. Through the Company's Agricultural Productivity segment, it manufactures Roundup brand herbicides and other herbicides and provides lawn-and-garden herbicide products for the residential market. Its products include Glyphosate-based herbicides, Selective herbicides and Lawn-and-garden herbicides. The stock closed yesterday’s trading session at $87.32. In the past year, the stock has hit a 52-week low of $81.22 and 52-week high of $126.00. MON has a market cap of $38.82 billion and is part of the basic materials sector.

MON Strengths
  • Strong bioengineer capabilities 
  • Strong brand portfolio
  • Diversified operations
MON Weakness
  • Lawsuits regarding environmental violations
  • Distributor concentration
  • Bans on genetically modified crops 

MON Intrinsic Value

EPSttm 3.85 Year EPS
EPS GROWTH(Assumption) 1.10 2016 4.24
PE 22.93 2017 4.66
DIVEDEND PAYOUT 52.95 2018 5.12
EXPECTED STOCK RETURN 1.10 2019
2020
2021
5.64
6.20
6.82
Forecasted Stock Price in 2022 228.98 2022 7.50
Earnings Per Share after 10th year 9.99 2023
2024
2025
8.25
9.08
9.99
TOTAL EPS 67.49
TOTAL DIVIDENDS 35.74
Forecasted Stock Price in 2022-Dividends 264.72
Net Present Value 102.06
EPS Growth Value
8% 85.78
8.50% 89.61
9% 93.59
9.50% 97.74
10.50% 106.55
11% 111.23
11.50% 116.10
Based on the prospects of the company the valuation range is from 85.78 to 116.10.

Stock Valuation Model & Intrinsic Value Definitions

Current Price Level

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend. MON's 52 week high is $126.00 current price is 87.27, is 44.2% below the 52 week high. 

P/E Ratio

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be "moderate", which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature. The company has a P/E ratio of 22.93 above the average industry P/E ratio of 17.00 and is above the S&P 500 P/E ratio of 17.45. 

Insider Ownership

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders. Insiders own 0.27% of MON stock. Management's representation is not large enough. This does satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model

Technical Analysis

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

MON is trading in the range of $87.18 - $100.56 in the past 30 days. The stock has been showing support at $86.40 and resistance in the $93.60 range. The stock is trading below the 50-Day Moving Average and below the 200-Day Moving Average. The RSI(14) is 34.87. Our indicators give a bearish view on MON. 

Financials

The financial health of the company the higher the better, we evaluate all the financial ratios of the company. 

Sentiment

Investor’s sentiment for the stock.

Analyst Ratings

The model assigns a value according to analyst’s recommendation for the stock. Analyst rating on Reuters.com is 9 Buy, 6 Outperform, 2 Hold, 0 Underperform and 0 Sell.

Earnings Consistency

We are searching for EPS numbers that are better than the previous year's. One dip is allowed, but the following year's earnings should be higher than the previous year. MON’s annual EPS for the last 5 years were 2.96, 3.78, 4.63, 5.20, 4.75 this type of earnings action is positive. 

Total Debt/Equity

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 25% or should be less than the average Debt/Equity for its industry. MON’s have total debt/equity ratio of 273.31 which is negative.

EPS This Quarter VS Same Quarter Last Year

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a "good" growth company. Stocks with improving earnings are worthy of your extra attention. MON’s EPS growth for this quarter relative to the same quarter a year earlier is -223.40, below our target.

Annual Earnings Growth

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%. MON’s annual earnings growth rate over the past five years is 19.09%, above the target growth rate.

1Tradespoon Score and Outlook: This score conveys Tradespoon’s long-term outlook of 1 to 5 years for a particular stock. Tradespoon uses proprietary methods to rate its trading picks on a scale from 1 to 10, with a 10 being the most favorable expected risk and return outlook. To determine a stock’s rating, Tradespoon uses an advanced algorithm that factors in fundamental and technical analysis to determine a stock's expected risk and return.