3 Reasons Monsanto Company Shares Could Hit $135 in 2014

Despite the emerging threat from Dow Chemical's Enlist E3 soybeans, Monsanto's moves and strengths could push it higher this year.

Jan 24, 2014 at 12:02PM

Monsanto (NYSE:MON) may have disappointed investors recently by keeping its outlook for 2014 unchanged, but Wells Fargo isn't complaining. Impressed by the seed maker's first-quarterly earnings report, Wells Fargo upgraded its rating on the stock and upped its price target to $130-$135. That represents at least 15% upside from Monsanto's current share price of around $113.

Now that sounds pretty good, considering that rival DuPont (NYSE:DD) was also upgraded by Bank of America Merrill Lynch around the same time, but its price target represents less than 10% upside from current share price of near $64. In fact, while the consensus opinion about Monsanto points to a strong buy, most analysts consider DuPont stock a hold. So why is the Street optimistic about Monsanto? The answer could be hidden in something the company revealed in its earnings report.

Emerging trends
It was actually a soft first quarter for Monsanto, with seed and trait sales falling 5% year over year as the Latin American season drew to a close. Nevertheless, the company's net profit improved 9% on lower costs.

But two things stood out during the quarter:

  • Sales and gross profit from Monsanto's agricultural productivity segment, which sells Roundup and other herbicides, surged 23% and 50%, respectively, year over year; and
  • Soybean seed sales shot up 16% even as corn sales slipped 7%.

There are two key takeaways from this -- Monsanto's Roundup, and herbicides in general, continue to be highly demanded, and soybeans are increasingly gaining popularity among farmers. The second trend, in particular, deserves attention, given how seed companies largely depend on corn for sales and profits.

While corn accounted for roughly 63% of Monsanto's total seed sales during the first quarter, soybean seeds made up just 16% of its sales. That's not the kind of mix you would want to see given how farmers in the U.S. as well as Latin America are planting more soybeans over corn in the wake of firm soybeans crop prices. Farm Futures even projects a "major shift to soybeans" this year. Thankfully, Monsanto is ramping up its soybeans portfolio to keep up with the changing times.

Moving in the right direction
The next-generation Intacta RR2 PRO soybeans trait was among Monsanto's most important launches last year. With soybeans planting nearly over in Latin America, Monsanto is confident that Intacta has hit its targeted 3 million acres in Brazil during the season. That's huge coverage for a freshly launched product, and explains why Monsanto calls it its "largest-ever soybean launch." With Monsanto already boasting 85% share in the Brazilian soybeans market, Intacta could give any competitor sleepless nights (read: DuPont's chances of improving its 10% share in the market looks like a distant dream now).


Image source: Company website.

Meanwhile, Monsanto is readying Intacta for launch in Argentina next year, so investors can only expect things to get bigger from here. At the same time, Monsanto's Vistive Gold soybeans -- which can produce low-fat soybean oil -- and its Roundup Ready 2 Xtend soybeans will also go into testing this year. This aggressive expansion into soybeans should enable the company to stay ahead in the race, especially at a time when smaller peer Dow Chemical (NYSE:DOW) is hitting headlines for its controversial herbicide-tolerant Enlist E3 soybeans that just got a step closer to receiving the U.S. Department of Agriculture's approval.

Enlist E3 will be a major breakthrough for Dow Chemical. In fact, Dow Chemical believes that Enlist has the potential to overtake Monsanto's hugely successful Roundup Ready weed control system. While that's bad news for Monsanto, Dow Chemical has a lot of work to do because Roundup currently dominates a whopping 90% of the soybean acreage in the U.S. Moreover, it's unlikely that Monsanto will allow competition to take over so easily, so the race should only heat up from here.

There's more to cheer about

Monsanto's pipeline is anyway growing bigger by the day, with a record 29 products moving up the development ladder last year. Five of them, including Intacta RR2 PRO soybeans, are ready for commercial launch.

While that substantiates the company's leadership as an innovator, Monsanto also took a big leap in the field of precision agriculture recently by acquiring Climate Corporation. It took on $1 billion in debt to fund the acquisition, but investors should be happy to know that Monsanto is financially solid, sporting a comfortable long-term debt-to-equity ratio of 24% and having generated free cash flow of nearly $2 billion over the past 12 months. Ample reasons for investors to stay optimistic about the company.

Foolish takeaway
If the weather doesn't play truant this year, Monsanto should be headed for another good year. It projects to earn between $5.00 and $5.20 per share this year, suggesting at least 10% upside over 2013. That's good growth, and Wells Fargo may have hit the right note on this one.

How to make a killing even if the market gets crushed
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.


Fool contributor Neha Chamaria has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers