Like It or Not, GMO Protests Won't Slow Monsanto Company or Its Shares

Monsanto continues to sell more, and profit even more, and the trend is here to stay.

Apr 6, 2014 at 2:00PM

Monsanto (NYSE:MON) detractors may be growing in number the world over, but none of it is hurting the company, or its investors. After Wells Fargo upgraded its price target on the stock following the company's impressive first-quarter performance, it's JPMorgan Chase's turn to go bullish on Monsanto now.

Impressed by the company's good second-quarter numbers, JPMorgan upgraded Monsanto stock to "overweight" and upped its price target to $125 a share. That sounds good, but given the growth catalysts, I find JPMorgan's price target still conservative, and I believe that Monsanto could fly higher this year. But for those who want to draw a parallel with arch-rival DuPont (NYSE:DD), beware: The tailwinds may not favor DuPont as much.

Did you notice this?
Investors may have focused on just the numbers -- Monsanto's Q2 revenue and net income climbed 7% and 13% year over year, respectively -- but the real story lies in how the company boosted its top and bottom lines.

Mon Corn

Source: Monsanto.

Some analysts expected lower corn acreage to hurt Monsanto, since corn is the biggest revenue driver for the company. In a report released Monday, the U.S. Department of Agriculture projected soybean acreage to jump 6% to record 81.5 million acres in 2014, even as corn acreage is forecast to slip 4% to 91.7 million acres.

But Monsanto's foothold in the soybean market is as strong as that in corn, thanks to its hugely popular Roundup Ready and Intacta traits. Its soybean seed sales jumped sharply in each of the past two quarters, registering 16% and 21% year-over-year growth in Q1 and Q2, respectively.

This should excite you
What really struck me was the staggering 36% year-over-year jump in Monsanto's Q2 gross profit from soybeans. Now here's why you, as a Monsanto investor, should be excited: Soybeans contributed only 18% to Monsanto's total seed sales during the six months through February, but its gross margin at 65% was at par with corn gross margin. In fact, soybean margin jumped a remarkable nine percentage points during the six-month period even as corn margin improved only two percentage points.

Monsanto Intacta Rr

Intacta RR2 PRO. Source: Monsanto.

In other words, soybeans are as profitable to Monsanto as corn, which means that the company should be able to churn greater profits even if corn seeds slow down, as they did during the past two quarters. That's great news for investors, especially since soybeans will remain the theme for 2014.

Geared for a strong second half
If Monsanto's Roundup Ready 2 Yield soybeans are driving sales in the U.S., its Intacta trait is ready to take the other key market, Latin America, by storm. The company's second-quarter earnings call brought to light some amazing facts about Intacta, which suggest how big the opportunity really is.

  • During the very first season of launch last year, Intacta RR2 PRO covered an astounding 3 million acres in Brazil, making it Monsanto's largest-ever soybean trait launch.
  • More than 13,000 farmers opted for Intacta RR2 PRO in Brazil. Comparatively, just about 1,000 farmers participated during the trial program last year.
  • Monsanto hit the market with 35 varieties of the Intacta trait. That's double the number of varieties it rolled out for the Roundup Ready 2 Yield in the U.S. four years back.
  • Intacta RR2 PRO is delivering as projected during the trials, yielding an advantage of four bushels per acre against Monsanto's first-generation Roundup Ready soybeans.
  • Monsanto will ramp up Intacta faster than any other soybean trait so far. It is already developing the second and third generation of the trait and is on track to commercially launch it in Argentina next year.

Monsanto projects its sales from soybeans to grow a massive $1 billion over the next five years, backed by Intacta, Roundup Ready 2 Yield, and the Roundup Ready 2 Xtend (pending approval) platforms. Cross-licensing agreements with competitors should play a big role in the company's growth.

Monsanto appears unbeatable
DuPont Pioneer started offering Roundup Ready 2 Yield soybeans this year and will offer Roundup Ready 2 Xtend from 2015. DuPont will pay $200 million annually beginning this year, with Monsanto booking the first installment in Q2. Additionally, DuPont will pay a minimum annual royalty of $950 million beginning in 2018. Likewise, Syngenta (NYSE:SYT) also offers the Roundup Ready 2 Yield soybeans in return for royalty payments.

Only Dow Chemical (NYSE:DOW) could emerge a threat if its controversial herbicide-tolerant Enlist E3 soybeans hit the launch pad. Enlist E3 is glyphosate tolerant, which is a direct dig at Monsanto's glyphosate-based Roundup. Small wonder, then, that Dow is expecting significant market share gains once Enlist E3 is out.

But Dow's dreams could still be years away. As of now, given that Monsanto's Roundup trait covers more than 90% of the soybean acres in the U.S., and the company already has 85% of the Brazilian soybean market under its belt, no other company can come even close to competing.

Foolish takeaway
Monsanto advanced a record number of 29 products last year, ensuring that it remains a leader in the global seed business. The company's full-year earnings guidance of $5.00 and $5.20 a share represents at least a good 10% upside over 2013.

What's more, Monsanto is ready to return "significantly more than the free cash" it generates this year to shareholders as dividends and share buybacks. That's a double boon for investors, provided the stock continues to move up. I don't see any reason it shouldn't.

Not sure whether Monsanto will make you rich? Consider this stock instead
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.


Neha Chamaria and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't 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.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information