Monsanto (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 (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 (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.