The subject of genetically-modified foods has been an increasingly hot topic among consumers. According to Worker's World, about 80% of "non-organic processed foods…now contain genetically engineered bacteria, viruses, antibiotic-resistant genes or imported DNA".
Monsanto Company (MON) sits squarely in the center of the maelstrom. It is one of the dominant agrochemical companies worldwide. On June 26, Monsanto announced that third-quarter sales fell 3% year over year. Last year's drought was the culprit, leading to disappointing seed sales. This was offset by higher profits on herbicides, leading to a slight beat on the bottom line. The shares have since rebounded to above $100, more than 5% above last week's lows.
This week, one of Monsanto's partners will attempt to impress Wall Street. On Thursday evening, Ceres Incorporated (CERE) will report its May-quarter results. As part of that report, CERE is expected to provide the most critical update since its IPO. If the news is good, the stock could be on its way to becoming a ten-bagger or more. If not, it could be on its way to zero.
Here's the rundown on this "Ten Bagger or Bust"...
CERE is an agricultural biotechnology company, which develops and sells energy crops to produce renewable biomass feedstocks in North America. Ceres has been applying the techniques used in the Human Genome Project to agriculture. Its long-standing product discovery and development collaboration relationship with Monsanto has been focused on applying genomics technologies to provide improvements in certain agricultural crops.
CERE's crops include sweet sorghum, which complements sugarcane production. In other words, CERE believes it has developed a superior method for growing crops that can be converted into fuel sources.
The jury is still out. Thus far, the ride hasn't been great for investors. Its February 2012 IPO was a bust. The company raised $65 million at $13, well short of the $132 million it was expected to attract at $21-23. At issue was its 2012 crop-yield data, which was reportedly hurt by a draught in Brazil. The shares have essentially been in free-fall ever since, recently bottoming out at less than $2 per share.
But 2013 is a new year and the weather in Brazil has been much more conducive to a successful crop. If CERE's sweet sorghum yields are strong, the shares could quickly rise to Raymond James' price target of $7.
On April 11, President & CEO Richard Hamilton provided cause for optimism during CERE's February-quarter update:
I'm pleased to report that by and large the growing season thus far has been favorable with a few exceptions that I'll discuss in a moment. We are seeing what I would describe as the normal variation in conditions during the season and from field to field, and this has allowed ourselves and the majority of our customers to focus our attention on how our products are performing as well as on the overall economics of sweet sorghum cultivation and processing.
In terms of performance and yield, we appear to be ahead of our competitors. As well the reports that we've received from our mill customers make me confident that our portfolio of sweet sorghum hybrids is superior to competing products from other companies, both large and small.
As we approach harvest our hybrids are visibly taller than competitors' at multiple locations where side-by-side comparisons are available…you generally can't see a 5% yield advantage in the field, so we believe our overall yield advantage could be larger. We'll see how this plays out in terms of final yields and other performance indicators once the harvest season is complete.
The news wasn't all positive, as some weather-related delays in planting will result in lower yields (since late-planted crops don't have as much time to grow). That being said, Hamilton disclosed that the mill would still be able to harvest its products in stark contrast to competitors, which would be forced to plow under its plantings.
Overall, this was in line with the lowered expectations for soybean crops provided by the Brazilian government in March. However, the lowered forecast still represented a significant increase over 2012. In the June WASDE (World Agricultural Supply and Demand Estimates) report, Brazil was cited as a global bright spot in corn production, helping to offset weaker than expected results in the U.S.
In fact, with the exception of cotton and wheat, Brazil generally produced more this year across the board. Corn was up 5%, Rice 3%, and Coarse Grain 5%.
So, how will Thursday's report play out? That information remains under lock and key. One thing seems certain - the weather in Brazil was broadly positive, leaving CERE little room to cast blame. If CERE is the real deal, we're likely to find that out on Thursday evening.
Investors with a tolerance for risk should take note. Friday's trading will likely show whether CERE is on its way to being a ten bagger or a bust.