Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.

Monsanto (MON) still expensive.

|Includes: Monsanto Company (MON)

Monsanto closed at $59.42 on October 30th, 2010.

From a high of $140 in 2008, the stock has been more than cut in half. However the stock still looks expensive and trades like a growth stock.  Let's look at earnings the past few years and the analyst estimates going forward.

(fiscal year)
2008, EPS was $3.62.
2009 EPS was $3.80.
2010, EPS was $2.41.
Average estimates for 2011 are $2.79
Average estimates for 2012 are $3.30

Currently, investors are paying 20x + forward earnings of $2.79. Monsanto has yet to reach new higher earnings and unless they hit the high estimates in 2012 of $4.00, investors in Monsanto will need to wait until at least 2013 fiscal year to see growth in earnings from 2009. 

Let's look now at the companies main business lines and see if margins can increase substantially.

In the Roundup business, the company has cut prices to be more competitive with generics.  Monsanto has also 'right' sized the business, cutting costs which will improve margins and profits for the upcoming year. 

The company is still waiting for the full corn harvest to evaluate SmartStax (newest product).  After initial very disappointing results, the results have started to come in better (which in my opinion has helped support the stock from the recent low of $49).  While results are better lately, the extra yield potential is still disappointing and not meeting expectations of the farmer.

Based on everything I've read so far, SmartStax premium pricing will have to come down.  On the other hand, other corn seeds, such as VT Triple Pro and VT Double Pro have proven their extra yield potential and will continue their premium pricing.  Margins should stay the same as these two products will become a larger portion on the overall sales.  

Soybeans Round up 2 Ready the average incremental yield is 3 to 4 bushels per acre.  At current prices in the $12-$13 range, the profit of $36 - $52.  With pricing at current $20 over other seeds, the cost of the seeds need to be lowered to adequately compensate the farmer. 

With the current economics of high prices for Corn and Soybeans, the main increase in earnings will come from the demand side.  Any extra acreage that can be planted will be planted with prices that are historically high. 

Based on my analysis, Monsanto will not be able to increase margins significantly and is priced for perfection. 



Disclosure: Short Monsanto