Sygenta: Up Big on Monsanto Deal

Up until recently, I had been a little bearish Sygenta (SYT). The reasoning wasn't that I thought the agricultural space was forming a bubble, it was because SYT seemed to be the odd man out with respect to seeds. Its recent deal with Monsanto (MON) made me take notice.

The deal to swap Roundup Ready technology for dicamba technology seems to tip in the favor of SYT. The terms of the deal were not released, but I would guess they did an even swap. Roundup Ready technology with respect to the soybean is used a great deal in my area. The reason is that Roundup kills everything. Basically the farmer plants the seeds and sprays Roundup all over the place. This kills all of the weeds except the soybean plant which in turn increases yield.

The reason to be bullish Sygenta is in the verbage associated with the deal. The reason that Monsanto gave up so much was its monopoly. As much as monopolies are good for shareholders, they are frowned upon in the marketplace. Sygenta's antitrust suit was the big problem. If one company can prove that Monsanto has done anything to keep other competitors out of markets, it could open the door to further lawsuits and that is why the deal ended all antitrust issues.

Also, money can be made with both Monsanto and Sygenta with the deal. They are going to begin to work together to give farmers more choices with respect to using both dicamba and Round up Ready. Still Sygenta should see much more growth from this deal now and in the future.

Not only will this save the costs of further lawsuits, but it will also position these two companies well against competitors. Now that the strong just got stronger, it will be even more difficult for others to break into their respective areas. With respect to an investment, comparing the two companies on valuation clears up why SYT is a good investment.

The PE for SYT is 27 versus a PE of 40 with MON. The year over year revenue growth was 24.8% for SYT while MON saw 44.8%. Margins for the companies are very close as SYT has 49.41% versus 52.9%. The P/S ratio shows that SYT has 3.05 versus MON's 6.35. Also, Sygenta has grown 25% per year for the last five, but analysts are expecting only 15% for the next five. This number seems very low when compared to MON's 41% for the last five and 37% for the next five years.

The chart is also bullish for SYT. The current trend suggests a price target of $89. Currently, the stock seems to be trading between $55 and $65. This is important as you should stop out at $55, but selling at $64 would be a reasonable gain. After the stock moves past $65 on high volume, I would buy in as it makes new highs, as the current bullish trend is still intact and should be for some time on the news of the Monsanto deal. Over the past three months this stock is up almost 9% on my call on theupdown.com.

Disclosure: Long.

Comments

[pitchforkpaul:]

You buy SYN and I'll buy MON! Good luck! :) Don't give up your day job!

2008 May 29 04:33 PM

[legmaker:]

I already own Monsanto, glad you like it.

2008 May 30 12:56 AM

[Carl Martin:]

An elegant response michael, keep up your good work!

2008 Jun 23 08:43 AM

[ILL PA.:]

I OWN SHARES OF ==MON== & ==IPI ==.
I PLAN ON ADDING TO MY SHARES AS MUCH AS I CAN.
MR. G.

2008 Jul 09 04:09 PM