Monsanto’s lawyer, Seth Waxman, also compared Monsanto’s seed technology to vaccines, which can also self-replicate. Waxman noted, “When Merck & Co., Inc. (NYSE:MRK) or Bristol Myers Squibb Co. (NYSE:BMY) develops a vaccine and sells some of it to CVS Caremark Corporation (NYSE:CVS) so I can go in and get injected, they haven’t lost all of their patent rights in that vaccine. CVS can’t turn around and become a competitor.”
The government’s attorney, Melissa Arbus Sherry, also associated Monsanto’s seeds with copyrighted software. “I can purchase software; one reasonable use would be to make a dozen other copies to give to my friends or sell on eBay Inc (NASDAQ:EBAY),” she stated. “It’s a reasonable use, but it’s an infringing one.”
Goliath crushes Goliath
Monsanto doesn’t just spend its time bullying non-complying small-town farmers, as the acclaimed documentary Food, Inc. would have you believe. Monsanto also recently took down its industry peer E I Du Pont De Nemours And Co (NYSE:DD) to win a $1 billion settlement — the fourth largest in history — after DuPont produced genetically altered soybeans possessing the same patented GAT trait as Monsanto’s Roundup Ready seeds. Although DuPont developed the beans in question, the company never brought them to the public market for sale.
Prior to that victory, DuPont’s seed business had been considered a viable competitor to Monsanto’s core operations. After that settlement, few questioned Monsanto’s continued dominance of the field.
Fundamentals and growth
Monsanto enjoys an incredibly wide defensive moat. Only two companies can be considered true competitors — fellow chemical manufacturers DuPont and Syngenta AG (ADR) (NYSE:SYT), which both also offer genetically altered seeds in addition to herbicides and other chemical products.
How does Monsanto stack up to these rivals fundamentally?
| Forward P/E | 5-year PEG | Price to Sales (ttm) | Debt to Equity | Return on Equity (ttm) | Profit Margin | |
| Monsanto | 19.20 | 2.01 | 3.90 | 16.69 | 19.40% | 16.12% |
| DuPont | 10.64 | 1.98 | 1.26 | 115.34 | 25.91% | 7.96% |
| Syngenta | N/A | N/A | 2.79 | 38.24 | 23.06% | 13.18% |
| Advantage: | DuPont | DuPont | DuPont | Monsanto | DuPont | Monsanto |
Source: Yahoo! Finance
While DuPont definitely looks like a better value stock, Monsanto’s strengths lie in its low debt and high margins. Meanwhile, Syngenta is a controversial company that has been accused of human rights violations in South America, and its herbicides and pesticides have been at the center of several safety investigations. As such, its stock price and scattered ratios suggest that the company is struggling.
The Bottom Line
Monsanto is a powerful company that has answered that controversial question — can life be patented? If the company’s history is any indication, then that answer is a resounding yes. Monsanto’s ability to continue generating revenue — even as earnings waver seasonally — is too incredible to ignore.
MON Revenue TTM data by YCharts
Investors should not be alarmed by the company’s steep dips and precipitous climbs in earnings per share, since these purchases are usually stronger when the farming season starts. The company’s revenue growth is strong, and thanks to the recent Supreme Court judgment, it looks to remain that way for the foreseeable future.
The article Monsanto: Bet On the Bully! originally appeared on Fool.com and is written by Leo Sun.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
