Is Monsanto Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Monsanto (NYSE: MON  ) fit the bill? Let's look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Monsanto's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's look at Monsanto's key statistics:

MON Total Return Price Chart

MON Total Return Price data by YCharts

Passing Criteria

3-Year* Change

Grade

Revenue growth > 30%

41.6%

Pass

Improving profit margin

73.8%

Pass

Free cash flow growth > Net income growth

401.1% vs. 146%

Pass

Improving EPS

152.5%

Pass

Stock growth (+ 15%) < EPS growth

122% vs. 152.5%

Pass

Source: YCharts.
*Period begins at end of Q2 2010.

MON Return on Equity Chart

MON Return on Equity data by YCharts

Passing Criteria

3-Year* Change

Grade

Improving return on equity

103.6%

Pass

Declining debt to equity

(37.2%)

Pass

Dividend growth > 25%

41.5%

Pass

Free cash flow payout ratio < 50%

34.7%

Pass

Source: YCharts.
*Period begins at end of Q2 2010.

How we got here and where we're going
Monsanto comes through with a flawless performance, earning only the third perfect score ever awarded after an analysis of well over 200 stocks. Everything is moving in the right direction, and the only argument one could feasibly make against Monsanto's fundamentals is that its free cash flow spiked early in the tracking period and has not made much progress since 2011. However, current free cash flow levels are more than adequate to sustain Monsanto's dividend, and the company's share price has not escaped from its earnings growth. However, Monsanto remains embroiled in a ferocious worldwide controversy, the outcome of which is yet to be determined. Will Monsanto continue to be one of the market's strongest stocks, or is this company doomed to wilt unexpectedly on the vine? Let's dig deeper to see what the future holds.

Regulatory bodies around the world -- with the notable exception of the United States -- have enacted legislation that may have a huge impact on genetically modified seed companies such as Monsanto, DuPont (NYSE: DD  ) , and Syngenta (NYSE: SYT  ) . These new laws range in severity from a requiring stricter labeling requirement to an outright ban on GM crops. Fool contributor Jacob Roche notes that several major international scientific groups have found GM crops to be safe, but several countries have outlawed their cultivation regardless.

Consequently, Monsanto has discontinued its pursuit of regulatory approval for a number of its newer seeds. Rivals DuPont and Syngenta will continue with the approval process, which could put Monsanto at an international disadvantage if its competitors' seeds wind up as the approved plantings of choice internationally. Fool contributor Rich Duprey notes that Monsanto has decided to focus on its conventional seed products in Europe after withdrawing from efforts to cultivate eight out of nine GM crops on the continent. Rival Syngenta is also combating the European Union's ban on its pesticide thiamethoxam, which is assumed to be responsible for honeybee Colony Collapse Disorder. This pushback could backfire as a public-relations fiasco, but Monsanto remains very much the focal point of anti-GM activists, so its competitors may be able to simply slide under the radar despite engaging in similar behaviors.

Since Europe has effectively banned the use of GM crops for the time being, seed and chemical companies are looking toward Africa, which has long been intransigent in its decision to introduce GM crops. Rich Duprey notes that Burkina Faso, Egypt, South Africa, and Sudan are the only four African countries that have permitted commercialized GM foods. Last year, Monsanto acquired two seed companies, Sensako and Carnia, which now account for half of the South African maize (corn) market. On the other hand, DuPont's Hi -Bred division acquired an 80% stake in Pannar Seed to expand into the GM maize market, which accounts for around 75% of the crops grown in South Africa. These acquisitions face strong resistance in the region, as Monsanto and DuPont together will effectively take complete control of the planting of a domestic staple food.

On the other hand, Fool contributor Neha Chamaria notes that Monsanto is poised to reap significant profits from the Latin American primary crop planting season. Monsanto has recently launched its first-ever South American exclusive biotech trait -- Intacta RR2 PRO soybeans -- in Brazil, which offers a 100-million acre opportunity. In addition, the company is expecting promising results from its Genuity corn traits in Argentina.

Putting the pieces together
Today, Monsanto has many of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

The greatest investment in the world
Everyone needs to eat, but is there a more valuable resource than food in the world? There certainly is. It's not gold. Or even oil. But it's more valuable than both of them. Combined. And here's the crazy part: One emerging company already has the market cornered and stands to make in-the-know investors boatloads of cash. We reveal all in our special 100% free report "The 21st Century's Most Precious Natural Resource." Just click here for instant access!


Read/Post Comments (6) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 22, 2013, at 11:23 PM, funfundvierzig wrote:

    Superior-managed Monsanto out-runs its nearest competitor, DuPont, by a country mile. Unfortunately for DuPont's long-suffering shareholders in the agricultural arena, DuPont will soon have to pony up $2 billion or more by our conservative estimate to settle tens of thousands of litigation claims in federal and state courts generated by its failed dandelion lawn treatment turned serial tree-killer. Imprelis, Tell Us! ...funfun..

  • Report this Comment On September 22, 2013, at 11:43 PM, cbaker998 wrote:

    no no no do you want our future to be riddle with cancer...... look it up do your research this company is responsible for so many disease`s do not put your money into garbage.. because of them i am going green no G M O please for me and for my grandchildren dont invest in them PLEASE!!!!!!! bad bad bad TRUST ME!!!!

  • Report this Comment On September 23, 2013, at 12:41 AM, tempchennai wrote:

    How can this "Most hated company in the world" be destined for greatness? Are you kidding?

  • Report this Comment On September 23, 2013, at 12:42 AM, tempchennai wrote:

    cbaker998 - Do not worry. This stock is going to crash soon. People are waking up. March against Monsanto is planned in ~600 cities on 12th Oct 2013. google on this event and join.

  • Report this Comment On September 23, 2013, at 8:41 AM, jtltetmt wrote:

    Monsanto MUST DIE !!!!!!!!!!!!

    Anyone who supports this cancer causing company and their products needs their ass kicked and if they tell me face to face that they support them I will kick their ass on the spot. Our freaking gov't needs their ass kicked for allowing this, especially Obama for putting the former Monsanto CEO as head of the FDA. Totally unacceptable and ludicrous.

  • Report this Comment On September 23, 2013, at 3:05 PM, notogmotx wrote:

    Hey Fools, you can't ignore public sentiment and consumer rejection. Inspite of Mon[ster]santo's bribing of politicians, diplomats, and regulatory agencies its GMOs are failures around the world. So, while your statistical charts and graphs come up five star, it seems that your conclusion is NO ... Mon[ster]santo is not headed for greatness. And, in conclusion - if readers follow the article to the end, as they should - you suggest investors look elsewhere.

    (So ... how much did Mon[ster]santo pay you for that somewhat misleading headline and article? ;-)

Add your comment.

DocumentId: 2648675, ~/Articles/ArticleHandler.aspx, 4/19/2014 10:47:46 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement