The debate over genetically modified organisms doesn’t seem to be hurting agricultural kingpin Monsanto (MON) at all.
As several states as well as the European Union have now begun calling for the outright ban of GMO’s or at bare minimum stricter labeling, MON keeps on growing like weeds.
The reason? It’s not focused on developed world anymore. Feeding the growing populations of the emerging world is the name of the game for MON these days. That focus on the developing world — along with a healthy dose of investment in agricultural tech — will continue to push-up MON stock “as high as a horse’s eye.”
Monsanto’s latest earnings report is a testament to that fact. And for longer-termed investors, MON stock seems like the ultimate agricultural slam dunk as we continue to grapple with feeding our growing planet.
Higher Earnings For MON Stock
For its latest quarter, the world’s largest producer of modified seeds and crop protection chemicals/herbicides managed to see earnings from continuing operations of $1.62 per share — down 5% year-over-year, sure, but also enough to topple estimates of $1.54 per share, according to FactSet estimates. It did so on disappointing revenues of $4.25 billion that were basically flat on the year.
The issue for the quarter: corn. GMO corn seeds are Monsanto’s best-selling product and one of its most profitable as well. However, MON saw a 13% decline in the amount of corn seed it sold as farmers switched to less profitable soybean seeds.
The lower corn plantings are a problem in the near term, the longer-term outlook for MON stock investors is a bit rosier. While it has been the dominant player in genetically modified seeds for years now, recent moves by the company should continue to bear some serious fruit.
First, Monsanto has made emerging markets — the kind the just need more food, rather than argue about GMO vs. non-GMO — a priority. MON has recently began developing seed and herbicide products specifically designed for emerging markets like Argentina, Brazil and parts of southeast Asia.
For example, sales of its Intacta soybean seeds — which contain insect-killing abilities targeted for Latin America — have already begun to surge. Yet analysts predict that the seed’s sales will quadruple to 12 million acres planted next year. Likewise, specifically designed rice seeds for Asian markets have already taken off.
Then there’s Monsanto’s recent plunges into other sectors of ag tech. Last year, it paid $1.1 billion for big data firm The Climate Corporation. The firm uses computers and algorithms to predict the weather and other crucial pieces of climate data needed for farmers. The deal works two ways for Monsanto:
- MON can use the firm’s software to prepare itself for future seed orders based on needed weather conditions.
- Monsanto could begin offering the software for farmers to allow them to better prepare and order just the right kind and bout of seeds needed from the agribusiness firm. Either way that should help drive Monsanto’s earnings further in the future.
Finally, there’s the potential hook-up with rival Syngenta (SYT) — the biggest crop-chemicals maker — to consider. While talks have backed-off in the face of possible antitrust concerns, investors should never say never. Stranger buyouts and mergers have gotten the greenlight from regulators.
If completed, the merger would allow Monsanto more corporate tax breaks and create the largest agro-chemicals company on the planet.
Driving MON Stock Forward
These potential catalysts should help drive MON stock forward. Already based on this quarter’s positive earnings reports, Monsanto was able to raise its 2014 earnings forecast to between $5.10 and $5.20 per share — a bump up of about a dime per share. The company also initiated a strong $10 billion share buyback program for the next two years (MON still has about $2 billion remaining in its current buyback program).
All in all, strong seed demand from emerging market plus some of its ag-tech programs should help Monsanto see a doubling in earnings per share by fiscal 2019. That longer-term forecast makes MON stock shares pretty cheap at a forward P/E of just 21 — even with shares up around 25% for the year and 5% daily gain based on its earnings.
For investors, Monsanto is proving why it’s the seed kingpin.
More importantly, it should be able to keep that title no matter what happens with regulation in the U.S. and Europe.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.