Some Financials on Monsanto (MON)

Bonds outstanding: $3.8 billion

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What the company does – Originally a chemical company, Monsanto has morphed into an agricultural giant, focusing on seeds and crop protection products. In a major breakthrough, Monsanto introduced the first genetically modified crop seeds in 1996 and has remained the industry leader. The St. Louis-based company generated $10.5 billion in sales during fiscal 2010, and is focused on bringing new biotechnology traits to market to improve farmer yields and productivity.

Morningstar’s take – Monsanto is still bouncing back from a series of missteps and misfortune that have plagued the company (and its stock price) during the last couple of years. An overly aggressive pricing strategy for the firm’s latest technology, SmartStax corn seeds and Roundup Ready 2 Yield soybeans, led to weak uptake, price cuts, and lower than anticipated profitability from the firm’s increasingly important seeds and genomics business. Seeds are more important for Monsanto today because profits from the firm’s other business, crop chemicals, have fallen off a cliff after glyphosate overcapacity forced Monsanto to basically cut Roundup prices in half and reset expectations. Adding to the company’s drama, the federal government has started poking around Monsanto’s business, looking for antitrust violations. While this list of bad news sounds daunting, we still believe Monsanto is the premier player in agricultural biotechnology. The company possesses a promising pipeline of seed products and with a few tweaks to its strategy (in our opinion, the firm needs to become more "farmer friendly"), we think Monsanto will right itself and continue generating shareholder value for years to come.

DIVIDEND RECORD – Monsanto is a consistent dividend grower, but it has a low payout and a low yield.

Dividend: $0.30 per quarter

Dividend yield: 1.51 ($1.20 annually / $79.20 share price)

Dividend payout ratio: 41% ($1.20 annual dividend / $2.92 average adjusted earnings)

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EARNING POWER – Monsanto earns an average of $2.92 per share @ 535.41 million shares

(Earnings adjusted for changes in capitalization)

EPS

Net income

Shares

Adjusted EPS

2006

$1.79

$993 M

555 M

$1.85

2007

$3.62

$2,024 M

559 M

$3.78

2008

$3.77

$2,092 M

556 M

$3.91

2009

$1.99

$1,096 M

551 M

$2.05

2010

$2.96

$1,607 M

542 M

$3.00

Average

$2.83

$1,562 M

535.41 M

$2.92

Five year average adjusted earnings per share is $2.92

Consider contrarian buying below $23.36 (8 times average adjusted EPS)

Consider value buying below $35.04 (12 times average adjusted EPS)

Consider speculative selling above $58.40 (20 times average adjusted EPS)

Monsanto is currently trading at 27 times average adjusted EPS.  This is speculative pricing.

BALANCE SHEET – Stockholder equity is not growing much.  The price to book value ratio is way too high for my likings.

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Book value per share: $20.62

Price to book value ratio: 3.84 (under 1.0 is good)

Current ratio: 1.66 latest qtr (over 2.0 is good)

Quick ratio: 1.02 latest qtr (over 1.0 is good)

Debt to equity ratio: 0.14 (lower is better)

CONCLUSION – Monsanto is an evil corporation that is creating franken-foods.  Their GM crops are spreading onto farms that don’t want them.  That is a massive violation of property rights.  Worse, Monsanto then sues the farmers for GM copyright infringement.  That is vile.  I would never buy this stock on moral principles.  http://bestmeal.info/monsanto/company-history.shtml or type evil monsanto into google.  You’ll be amazed what you’ll find.

The company has a measly dividend with a low payout ratio.  On the plus side it is a dividend grower.  It earns an average of $2.92 per share.  This makes the current price of the stock speculative at 27 times average earnings.  Never pay more than 20 times average adjusted earnings for a stock.  Monsanto’s balance sheet is nothing special.  Price to book value is too high at 3.84 times total equity.  This company is not a good deal.

The best time to buy Monsanto in recent years was at the end of June 2010 when the stock was trading at around 14 times average earnings.  Even then at the bottom the dividend yield would have been on 2.7% at today’s $0.30 quarterly dividend.  I don’t think there is much chance of Monsanto becoming a high dividend stock unless its management started paying out 80% of average net income in dividends ($2.33 annual dividend) and the stock dropped in price down to 12 times average earnings.  In that case Monsanto would yield 6.6% ($2.33 DIV / $35.04 share price), but that is not going to happen.  Bye-bye Monsanto.

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DISCLOSURE – I don’t own Monsanto (MON) and I never will.

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Published in: on January 13, 2012 at 2:02 pm  Leave a Comment  

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