Monsanto: Profits grow from seeds

This agribusiness leader expands by helping farmers increase their harvests.

By TheStockAdvisors Apr 25, 2013 9:38AM

Corn field © Bob Rashid Brand X CorbisBy Elliott Gue, Energy & Income Advisor


With demand for corn, soybeans and other agricultural commodities continuing to grow and the supply of arable land in decline, farmers need to maximize their harvests. Agribusiness giant Monsanto (MON) is one of our favorite food-related plays. Its innovative genetically-modified (GM) seeds are critical to producing more crops from less acreage.


GM seeds exhibit advantageous traits. For example, one of Monsanto's first GM seed products was corn that resisted the company's Roundup herbicide, enabling farm operators to control weeds without reducing the size of their harvest.


We expect seeds and genomics to drive much of the company's earnings growth in coming years, with the its innovative corn products (60% of 2012 revenue) leading the way.


SmartStax, Monsanto's top-selling corn seed, is engineered to resist earworm, fall army worm and other above-ground pests as well as below-ground insects such as rootworm.


SmartStax seeds have several advantages over competitors' offerings. Because these seeds counteract pests with multiple defense mechanisms, the likelihood that the insect population will develop immunity to these combined traits is much lower.


Management recently projected that its family of GM corn seeds would be sown on about 38 million acres of U.S. farmland -- up from 3 million acres in 2010 and 27 million acres in 2012. The growing popularity of these high-margin products should be a boon to the company's bottom line.


Robust investment in research and development also puts Monsanto ahead of the competition when it comes to innovative crop technologies. The company's newest GM corn seed, DroughtGard, is the first to exhibit resistance to dry weather.


A limited test in the western Great Plains last year found that seeds with DroughtGard yielded an additional five bushels per acre relative to seeds that lack this trait. Monsanto plans an extensive commercial rollout of DroughtGard during its 2013 fiscal year.


After corn, soybeans account for about 18% of Monsanto's annual revenue. Monsanto estimates that only 20% of soybean acreage is sown with GM soybeans, creating a significant growth opportunity for the company.


Monsanto also recently inked a deal to license its soybean technology to E.I. du Pont (DD) through 2030. We expect this agreement to dramatically expand Monsanto's footprint in the GM soybean market.


Monsanto's Intacta RR2 Pro soybeans also performed well in Brazilian trials last year, and the company has high hopes for the commercial rollout of the product.


Meanwhile, Monsanto also has a history of returning capital to shareholders via dividend increases and stock buybacks.


Not only has the agribusiness giant hiked its payout at an average annual rate of 17% over the past five years, but the company also repurchased $300 million worth of shares in the most recent quarter and has another $700 million that could be allocated to this purpose.


Monsanto rates as a "buy" up to $105 per share, though investors should back up the truck if the stock price dips to less than $95.


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5Comments
Apr 30, 2013 4:51PM
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Bio Crops will be the reason why the Social Security Fund will be fine while Medicare might not be. It's pure poison being spread across the Globe. Most folks won't get that until it's way too late.
Apr 30, 2013 1:07PM
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Hemp is not a dirty word

Why do we not grow hemp in this country? Because the politicians allowed themselves to be bought by in this case, paper companies who made a huge investments in trees and did not want hemp grown to be used in paper.

Hemp has many industrial uses, it is easy and cheap to grow, and is not a drug. If we allowed cultivation of hemp in this country again, it would generate billions in tax dollars, save farms and create new industrial jobs in this country.

May 1, 2013 2:43PM
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Monsanto Kills the farmers and the useless eaters with GMO crops causing Birth defects and deformities  in Argentina and all over the world with it's  global Genocide efforts...AND they are exempt from all Damages from our government.......WTF...? They are committing Genocide with our governments consent. BOYCOTT ALL MONSANTO PRODUCTS AND SEEDS ...THEY ARE KILL US SOFTLY......!! There seed and vegetable plants have no nutritional value........! They have been GENETICALLY ALTERED TO  STARVE AND KILL YOU....! 
May 1, 2013 7:32AM
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This is yet another case of Profit before commonsense. It will doom us all. That along with all the massive Global Money Printing. Soon, neither will have much value, bio crops and all the fake money that's being printed.
Jan 9, 2014 12:27PM
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My friend has been keeping me (or tries to keep me) informed on this.  He's really big into agriculture and things involving it and I try to listen.  Our produce is really important to look after and anything that helps it become better has my support.  http://www.midsotaagmn.com
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