Not too long ago, I tagged this stock as one of the best picks for 2013 riding on stupendous numbers, solid guidance, and macro tailwinds. Two days back, it hit a 52-week high, taking its year-to-date returns up to nearly 8%.
What is Monsanto Company (NYSE:MON)’s USP? Has it really fared well enough to deserve these premium valuations? More importantly, is it time to book some profits, hold on, or even dive into the stock right now?
Outstanding work
If a stock touches a 52-week high, it is only prudent to see how the company has performed over the past year, particularly in terms of top and bottom line growth. Monsanto has pulled it off quite well.
MON Revenue TTM data by YCharts
These figures look brilliant. I particularly like the fact that Monsanto Company (NYSE:MON)’s net income has grown at a pace more than twice that of revenue. I give a green thumbs up to a company that can convert its incremental revenue into income with such proficiency, because that only reflects management’s cost-control capabilities even as the company grows.
Reaping the fruits
So does it also mean that Monsanto outsmarted its peers in the game? Here’s how it stacks up against the two closest rivals in the seed business.
| Company | Revenue growth % | Gross Profit Margin % | Net Profit Margin % | Debt-to-Equity % | Return On Equity |
|---|---|---|---|---|---|
| Monsanto | 12.6 | 52.5 | 16.1 | 17 | 19.4 |
| DuPont | (2.3) | 27.5 | 7.9 | 117 | 30 |
| Syngenta (NYSE:SYT) | 6.8 | 49.2 | 13.2 | 41 | 23 |
Trailing Twelve Month figures
Monsanto Company (NYSE:MON) is the prettiest picture out there, beating DuPont and Syngenta across all measures. The best part is that Monsanto also sports the lowest total debt-to-equity ratio among the three, which somehow also explains its lower ROE. Higher leverage almost always pushes up ROE. Monsanto tops off with an enviable free cash flow of nearly $2.9 billion. That makes it one of the few companies that churn out greater cash than it earns as profits.
Monsanto is one of the best plays in the agriculture sector for two reasons – one, it deals in a product that is better insulated compared to other agriculture items, and two, it enjoys a leadership position in its field.
Top-class business
Seeds are indispensable needs for farmers, irrespective of the weather conditions. One might want to put fertilizers in the same league, but the problem with the fertilizer industry is that it is highly prone to fluctuations in prices, unlike seeds. Take the case of Potash (NYSE:POT)Corp, which dominates the potash nutrient market in the U.S. Like Monsanto Company (NYSE:MON), it faced the ups and downs of a solid spring followed by the most severe drought ever last year. But while Monsanto crossed over comfortably, PotashCorp ended 2012 with 9% drop in revenue and a dismal 32% slump in profits. Blame lower nutrient prices and soft global demand for potash. Comparatively, CF Industries, the nitrogen king, had a much stronger 2012. Nitrogen enjoys better demand as well as prices compared to as one of the most essential nutrients. Simply put, the volatility in fertilizer business is evident.
