Monsanto Reports Strong Earnings

Monsanto Company (MON) has once again showcased its financial strength and market dominance by reporting outstanding third-quarter results in which profit was up 42% from the same period last year. Based upon this stock's current price and analyst's earnings projections, shares are currently trading at a premium to the market. But when considering the company's current growth trajectory, it may be worth "paying up" for its shares.

Monsanto Company and its subsidiaries produce agricultural products for farmers primarily in the United States. The company specializes in producing seeds, specialty seeds and various herbicides. Monsanto was founded in 2000, carries a market cap. of $70.5 billion and is headquartered in St. Louis, Mo.

Impressive First-Quarter Results

Monsanto stepped up to the plate and delivered very impressive third-quarter results just two days ago, on June 25. Net sales were a record $3.6 billion, a 26% increase from the same period last year. Income for the quarter was $811 million, a 42% increase from last year. This produced earnings of $1.45 per share, safely ahead of analyst expectations of $1.35 per share.

The exceptional results have enabled Monsanto to significantly boost its cash flows at a time when cash and credit are hard to come by and many companies are struggling with liquidity issues. Free cash flows for the first 9-months of the year now stand at $675 million, compared to a use of $321 million in the first nine months of 2007.

After the very solid third-quarter results, Monsanto went ahead and raised its full-year guidance to $3.63 per share on a reported basis and $3.40 on an ongoing basis.

Valuations

Based upon this full-year earnings projection, shares of Monsanto are not exactly cheap, trading with a forward P/E multiple of 38X. But the company is in the fourth quarter of its current fiscal year, so based upon the next-year estimate, this stock does look a little more attractively priced, carrying a forward P/E multiple of 30X based upon the earnings projection of $4.24.

The Chart

Monsanto has traded mostly sideways in 2008, with shares recently giving back some of their gains. This is a very natural occurrence for a stock that has had the kind of 12-month run that Monsanto just booked. Profit taking is to be expected. As it stands, shares of MON are pressuring a key trend line that has been supporting prices for the last three months. If prices hold, look for this stock to accelerate back to its 52-week and all-time high just above $145.