Stock of the day 01/04/2016 – Monsanto Co

Struggling in the face of its even bigger sector peers can Monsanto turn things around with its second quarter update next Wednesday?

2015 was a true disaster for Monsanto; after nearing $126 at the end of February (a smidge below 2014’s peak) the company began to rapidly haemorrhage value, eventually hitting 3-ish year lows of $81.22 by the end of September. The stock admittedly did pick up from that autumn nadir as 2015 entered its endgame, Monsanto closing out the year at $98.53.

Yet, alongside the rest of the market, things quickly turned sour as 2016 began, the company falling back to the $87s by the end of January. In the midst of all that Monsanto updated investors on its fiscal first quarter, a statement that only accelerated its early in the year decline; the company revealed a 23% fall in revenue year-on-year to $2.22 billion (below the $2.41 billion expected), with a loss of $253 million, whilst announcing it was set to cut a further 1000 jobs.


(Source: IT-Finance.com 01/04/2016)

After that January slump the stock interestingly jumped 6.5% at the start of February as it was announced that Syngenta, a company that Monsanto pursued for 4 years, was being bought by rival ChemChina for $43 billion. The positive reaction from investors is likely explained in a comment from analyst Chris Shaw, who stated it was better for Monsanto to have ‘not overpaid for Syngenta’ rather than acquiring the Swiss seed company at any cost.

Not that this odd boost lasted long, Monsanto’s stock plunging below $85 as the company was forced to pay $80 million to settle charges of improper accounting. A patchy performance over the second half of February did eventually see the stock climb back above $90 at the start of March, only to hit a 2016 low of $83.74 as Monsanto cut the year’s earnings forecasts to $4.40-$5.10 from its previously estimated $5.10-$5.60. Whilst the stock did once again recover from its lows a rocky end to March still left it looking a bit peaky, Monsanto now sitting at a current trading price of $87.76 (IT-Finance.com, 01/04/2016).

In terms of its second quarter figures on Wednesday the company stated it now expects earnings of $2.35 to $2.45, below analysts’ expectations of $2.84 per share. Investors may also be keen to hear if Monsanto has any M&A action in the pipeline, since ChemChina’s aforementioned purchase of long-standing target Syngenta, alongside the landmark merger of Dupont and Dow-Chemical, leaves the company trailing its sector-rivals. Reportedly Monsanto has held discussions with both BASF and Bayer (the latter’s CropScience division the most talked about target) so any update on that count will likely be welcome.

Monsanto Co has a consensus rating of ‘Hold’ with an average target price of $105.