Source: Monsanto.

Over the past decade, many companies connected to the agricultural industry have seen their shares soar as favorable crop prices have made farmers more prosperous and given them more capital to use on yield-enhancing investments like fertilizers and specialized seeds. Monsanto (MON) has been at the forefront of the agricultural industry, generating plenty of controversy with its genetically modified seed, but raking in profits as well. Over the past few months, though, Monsanto stock has fallen abruptly, and some investors worry that even worse times could be ahead.

Nevertheless, Wall Street analysts still like Monsanto's prospects, with the vast majority of them having favorable opinions of the stock and expecting a recovery in the near future. Let's take a closer look at Monsanto to see why Wall Street's finest still see potential for the company.

Stats on Monsanto

2014 YTD Return


Average Price Target


Implied Potential Return



8 Strong Buy, 12 Buy, 4 Hold, 1 Underperform

Source: Yahoo! Finance.

Why Wall Street loves Monsanto
Wall Street always loves a winner, and Monsanto has produced dominant returns for investors over the past 10 years. As one of the first diversified chemical companies to see the full potential of the agricultural niche, Monsanto positioned itself early to take full advantage of the rise in demand for fertilizer and engineered seed. In the interim, peers DuPont (DD) and Dow Chemical (DOW) have followed Monsanto's lead to varying degrees, recognizing the profit potential from agricultural and shifting their emphasis away from their slower-growth businesses. From the analyst viewpoint, though, Monsanto has the reputation of being the first-mover with many key agricultural initiatives, and that makes it look more attractive in the eyes of many analysts.

Yet far from coasting on its past success, Monsanto has continued to move forward. As Fool contributor Maxx Chastko recently noted, acquisitions of companies like The Climate Corporation last year and Beeologics in 2011 have helped lead to innovative new developments for Monsanto, such as the company's real-time climate information platform designed to advise farmers on optimal crop-management techniques depending on weather during the growing season. Monsanto is also working on agricultural microbials that can help farmers fight pests and boost yields while protecting the quality of their land. Even simple cross-breeding could bring Monsanto success in untapped markets like vegetable seeds.

Source: Monsanto.

Does Monsanto face risks ahead?
Even given its long-term success, Monsanto is still vulnerable to short-term factors that hurt sales. Monsanto concentrates heavily on the corn market, so when farmers decide to plant soybeans instead -- as happened this year -- it can hurt the company's results. Similarly, while Monsanto has worked at increasing its geographical diversity, the company still gets more than 60% of its sales from North America. Even as Monsanto increases its exposure to markets in South America, Europe, and Africa, it still faces the whims of weather and their consequent impact on seed and fertilizer sales. Moreover, the more Monsanto turns into an international giant, the more adverse currency movements can hurt its earnings, as we've seen recently with the strong U.S. dollar.

Monsanto also has to deal with its controversial reputation. The company is far from the only one to profit from genetically modified organisms, but Monsanto still gets the lion's share of criticism over the practice. Some socially responsible investing philosophies therefore exclude Monsanto from their lists of permissible investments, but if anything, the long-term trends seem to favor the view that products from Monsanto and its peers will likely get more popular in future years rather than less.

With the world seeing its population continue to grow and the need for food only rising, Wall Street's finest believe Monsanto has the capacity to take full advantage of the profit opportunity in agriculture. Despite its challenges, Monsanto could easily bounce back from its recent funk and produce the returns long-term shareholders have come to expect.