At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about.

My, oh, my, Monsanto!
On Oct. 5, my fellow Fool Brian Pacampara laid out the case for why seed giant Monsanto (NYSE: MON) was poised to pop -- based on the collective opinion of the 180,000 lay and professional investors who collectively comprise Motley Fool CAPS. Later that day, the stock did just that ... and then the next day, the stock popped again. But why is it, exactly, that Monsanto's share price is making like Jack's beanstalk and growing to the sky?

Coupla reasons. First and most obviously, Monsanto kind of wowed Wall Street with its earnings report last Wednesday. Expected to report a $0.27 pro forma loss for its fiscal fourth quarter, the company instead reported a loss nearly 20% less severe ($0.22 per share). The company also allayed investor fears that its pricey, premium-quality crop seeds might be losing appeal with U.S. farmers in a tough economy. In fact, Monsanto reported sales of seed corn 58% higher than it had achieved in the year-ago quarter. Soybean seeds also sold strong, helping Monsanto book total sales gains of 39% in its seeds and genomics division.

And while management also put out some potentially bad news in the form of an earnings restatement, the restatement was estimated to cost the company only about a dime a share ... for earnings results that happened as much as two years ago. Ancient history, on Wall Street's timeline.

Back to the future
Meanwhile, in the here and now, Monsanto's news Wednesday was good enough to earn itself an upgrade to "overweight" from JPMorgan Thursday. Playing weatherman for a day, JP predicted "good weather" in the American corn belt in 2012. Then quickly re-donning its green eyeshade, the investment banker observed not only were Monsanto's 2011 results "better than expected," but with seed prices going up next year, and demand apparently still strong, Monsanto's 2012 numbers could be terrific.

I agree.

Monsanto: Buy the numbers
Oh, not necessarily because I believe JPMorgan is right about how well Monsanto will perform in 2012, or because I believe in its abilities as a weather forecaster. [Insert your favorite meteorologist joke here.] I agree that Monsanto is a good investment for the simple fact that the numbers tell me it is.

Now I know this statement is going to be controversial. After all, Monsanto shares aren't just more expensive than the average large-cap stock on the Dow Jones Industrial Average. At nearly 25 times trailing earnings, Monsanto also looks about twice as pricey as rival agricultural chemical stocks like Dupont (NYSE: DD), Dow Chemical (NYSE: DOW), and Syngenta (NYSE: SYT). But looks can be deceiving.

Look past the headline numbers at Monsanto, and what you'll find is a company that generated nearly $2.3 billion in free cash flow last year. That's 41.5% more cash profit than is reflected as "net earnings" on Monsanto's income statement. It's enough to give the stock a 16 price-to-free cash flow ratio. When you combined the 14% long-term growth estimate that analysts agree on for Monsanto, with the stock's modest 1.8% annual dividend yield, I think that's more than enough to justify the stock's price today.

Foolish final thought
If I have one reservation about Monsanto, though, it's that after gaining 17% since reporting earnings Wednesday, a lot of the value has already been squeezed out of this stock. While I believe Monsanto is fairly priced today, it's only fairly priced.

Still, if you agree with JPMorgan that 2012 is likely to be a good year for Monsanto selling seeds, logic would suggest it's also going to be pretty good for companies like Mosaic (NYSE: MOS) and Potash (NYSE: POT), for example, which sell the fertilizer that helps such seeds to thrive. If Monsanto's P/E ratio still has you nervous about investing in it, then shares of Mosaic or Potash, at prices just 9 times earnings, and 17 times, respectively, might be more to your taste.

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