Battle of the Agro-Chemical Titans: Monsanto vs. Mosaic

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Includes: MON, MOS
by: Efsinvestment

Monsanto (MON) and Mosaic (MOS) are among the largest agro-chemical companies in the world. While their business areas are diversified, both companies supply agricultural inputs used to increase farmers' productivity. Interestingly, both companies have market caps right above $30 billion. However, their ratios, past performance, and future estimations are significantly different. Here is a brief analysis of Monsanto and Mosaic (data from Finviz):

The Monsanto Company is a U.S.-based, multinational, agricultural biotechnology corporation. Monsanto is the leading producer of genetically engineered seeds, providing 90% of the genetically engineered seeds used in the U.S. market. The company also produces and markets the herbicide glyphosate, also known as roundup. Market cap is $34.98 billion. Current dividend yield is 1.66%. In last five years, shareholders enjoyed a whopping annualized EPS growth of 41.48%. EPS is expected to increase by 18.43%, and analysts estimate a 5-year EPS growth of 13.60%. Trailing P/E ratio is 28.10, while the forward P/E falls to 19.43. Beta is 1.19. Insiders own 0.2% of the company, and they increased their holdings by 6.99% in the last six months. On April 11, Deutsche Bank upgraded Monsanto with a target price of $78.

The Mosaic Company is a Fortune 500 company based in Plymouth, Minnesota. Mosaic is the world's largest producer of phosphate and the second-largest producer of potash. Both of these crop nutrients are primary ingredients in producing fertilizer. The trailing P/E ratio is 15.17, and a forward P/E is 14.30. PEG value of 0.98 is below the benchmark of 1. Mosaic has a low beta value of 0.82. The current dividend yield is 0.26%. The past five-year EPS growth rate has been 31.56%, while analysts estimate an annualized EPS growth of 14.3% for the next five-year period. Net profit margins stand at 25.26%, and ROE is 23.26%. In the last quarter, sales increased by 27.85%, and EPS increased by 143%. As of the last close, shares are trading 8.76% below their 50-day moving average. RBC has a target price of $109, implying an almost 60% upside potential.

Historical Comparison (Data from Morningstar):

2007

2008

2009

2010

TTM

P/E

MON

57.1

17.1

29.6

33.8

28.2

MOS

44.2

4.4

64.5

33.3

14.1

P/B

MON

7.6

4.2

4.3

3.7

3.2

MOS

8

2

3.2

3.8

2.9

P/S

MON

6.8

3.3

4.2

3.6

3.3

MOS

5.8

1.2

4.3

4.6

3.6

P/CF

MON

27.6

20.5

63.7

11.1

13.8

MOS

29.9

6.1

41.5

19.6

16

Dividend Yield

MON

0.49%

1.18%

1.27%

1.54%

-

MOS

0.00%

0.29%

2.51%

0.26%

-

Gross Margin

MON

50.05%

54.35%

57.68%

48.43%

49.42%

MOS

16.04%

32.21%

26.87%

25.05%

31.49%

Net Margin

MON

11.60%

17.81%

17.99%

10.56%

11.62%

MOS

7.27%

21.23%

22.82%

12.24%

25.30%

The analysis of past data shows that the fundamental ratios of Monsanto have been more stable than that of Mosaic company. Both companies were deeply affected by the financial crisis. However, Mosaic shareholders reacted much more than Monsanto, driving down the stock prices to an insanely low P/E ratio of just 4.4 by the end of 2008. Yet 2011 looks like it will be a pleasant year for Mosaic, where the profits will be higher. Trailing twelve month P/E ratio of 14.1 confirms the better future of Mosaic shares.

While Monsanto's gross profit margins hover around 50%, the net margins are much thinner, and ttm [trailing twelve month] net profit margin falls to 11.62%. On the other hand, Mosaic was able to double its gross margin in the last four years, from 16.04% in 2007, to 31.49%. Net profit margin increased by more than three-fold to 25.30% from the 2007 level of 7.27%.

Summary:

While both similar-sized companies have almost the same market caps and operate in the same business area, Mosaic stocks have more of a margin of safety than Monsanto. The company is improving its profitability, increasing net earnings and boosting the cash flow. The stocks currently trade with a trailing P/E of 15.7, and forward P/E ratio of 14.3. Analysts estimate an EPS growth of 14.3% for the next 5 years. That gives Mosaic a T-Metrix score of 5 out of 10, whereas Monsanto has a score of 3 only. If analyst estimates hold, Mosaic's shares can outperform Monsanto shares by a large margin in next five years.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.