The past couple of weeks have been very rough for many sectors of the economy as worries over Europe and a slow economy in the U.S. are plaguing a number of companies. This is no more true than in the commodity space, as firms that produce everything from oil to crops are feeling the pinch of a global slowdown and a stronger dollar. Yet, with the end of QE in sight and moderating fears over the euro, many are growing more optimistic over the longer term health of the economy, possibly spurring interest in commodity producers once again. With this changing sentiment, many investors will likely focus on one of the commodity world’s most famous companies, Monsanto (NYSE:MON), as the firm gives its quarterly update to investors later today.
Monsanto, the nearly $36 billion dollar firm based in St. Louis, is one of the largest providers of seeds and agricultural products in the world. The company is scheduled to report earnings before the bell today, giving investors further insight into an increasingly important– but volatile– segment of the economy. The company is expected to post earnings of about $1.11 a a share on revenues of $3.38 billion. Both of these figures compare favorably with the year ago period in which MON posted EPS of $0.81 on revenues of $2.96 billion.
Despite some level of weakness in the company’s stock price, investors expectations are likely pretty high for the company. MON has beaten earnings estimates in the past two quarters and has seen revenues go up for three straight. In fact, so far this year, revenues have risen by at least 6% when compared to the year ago periods for both of the past two quarters while full year revenue looks to be close to $870 million higher this year than last. Furthermore, 10 analysts rate the company as a buy, although the average rating is at a hold among those following the company on the Street, suggesting that MON may have a tall order to fill this quarter, especially given the weakness in several key agricultural markets.
Thanks to this key earnings report, investors should look for the PowerShares Global Agriculture Fund (NASDAQ:PAGG) to remain in focus throughout today’s trading session. PAGG tracks the NASDAQ OMX Global Agriculture Index which is designed to measure the overall performance of globally traded securities of the largest and most liquid companies involved in agriculture and farming-related activities. The fund gives one of its top three spots to MON, allocating nearly 7.8% to the company. Thanks to this large weighting, and Monsanto’s status as a bellwether of the industry, look for PAGG to be on the move today after the company releases its latest quarterly results.
Over the last 52 weeks, PAGG has performed very well gaining over 40% on the back of stronger demand for agricultural products and weather issues the world over. Yet, the fund is actually down 0.8% year-to-date, suggesting a stronger dollar and fears over lower demand have taken a toll on this sector. Nevertheless, PAGG has rebounded along with the broader market as of late, gaining close to 2.8% in the past week of trading, with a solid performance from MON later today this could accelerate further and possibly help the fund get back into positive territory for 2011. If, however, MON sees revenues slump or warns analysts regarding the future outlook for the sector, look for PAGG to sink in Wednesday trading, further extending the weakness of 2011 for the PowerShares fund.
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Disclosure: No positions at time of writing.
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