Monsanto Company (NYSE:MON) should continue to benefit from the boom in ethanol production and increased demand for herbicides. With MON up over 14% for 2007, the company’s earnings momentum and revised guidance should support the underlying trend.
Monsanto Company provides agricultural products for farmers in the U.S. and internationally. It operates in two segments, Seeds and Genomics and Agricultural Productivity. The Seeds and Genomics segment produces soybean, corn, canola and cotton seeds, as well as vegetable and fruit seeds. This segment also develops biotechnology traits that assist farmers in controlling insects and weeds, as well as provides genetic material and biotechnology traits to other seed companies for their seed brands. The Agricultural Productivity segment manufactures lawn and garden herbicide products for the residential market and animal agricultural products.
On Apr 4, the company reported first-quarter earnings of 98 cents per share, up from 80 cents in the prior-year quarter and four cents above expectations. Overall revenues rose by 19% to $2.62 billion, above analysts’ estimates of $2.44 billion. Corn seed sales were a huge contributor, soaring 47% to $1.19 billion due to the increase in ethanol production. However, as farmers planted more corn, the company received less from soybean sales, which declined by 17% to $373 million. Monsanto now has approximately 26% market share of the U.S. corn market. Company officials estimated that this percentage could increase to almost 30% by September. Monsanto also increased its full-year earnings estimates to between $1.60 and $1.65 per share, up from its previous guidance of $1.50 to $1.57.
Monsanto Company has surpassed analysts’ estimates for two consecutive quarters. As a result of the recent earnings momentum, analysts raised their full-year estimates by nine cents to $1.69. In addition, Zacks ranks the company a number one out of seven companies in the Agricultural Operations category, which itself ranks a very attractive 21 out of 217 industries.
As mentioned above, MON is up over 14% for 2007, compared to a gain of 5.3% for the S&P 500. The stock has risen by a solid 4.8% over the last month.
MON experienced an earnings induced upward price gap after reporting earnings and revenues that beat estimates. In particularly bullish fashion, the stock has not filled in the gap; instead, MON has continued to rally. The resulting price momentum also allowed the 21-day moving average to cross above the 50-day moving average, a classic positive technical indicator. The ethanol induced agriculture boom should continue to support Monsanto’s earnings momentum and drive the stock to new highs.
MON 1-yr chart: