Citi Downgrades Monsanto Amid Agriculture Downturn

Citi’s P.J. Juvekar downgraded the rating for Monsanto Company MON from Buy to Neutral, while reducing the price target from $105 to $95. The analyst cited agricultural downturn and its impact on the company as the reasons for the downward revisions.

In the current Ag downturn, Monsanto is not only facing intense competition in the older seeds segment, but also higher-than-expected pricing pressure in high-tech biotech seeds, analyst P. J. Juvekar said.

Agriculture Downturn to Limit Growth Prospects

Monsanto’s Seeds & Genomics recorded a gross profit CAGR of merely 6.6 percent from 2010-2015, despite some good farming years. Although the company continues to have a leading seeds R&D pipeline, it is likely to find it difficult to raise seed prices and reaccelerate seed profits growth, Juvekar commented.

Agriculture Downturn to Limit Growth Prospects The lack of higher grain prices and the absence of a favorable grain cycle raises the risks to Monsanto’s long-term mid-teens growth outlook, the analyst added.

Juvekar believes that Monsanto has limited options to make acquisitions in Ag chemicals, given the recent consolidation in the segment. A joint venture will mean Monsanto paying to buy a stake, which will create deal risk for shareholders.

“We think MON’s multiple is likely to come under pressure in such a scenario because Ag chemicals tend to trade at a lower multiple than the biotech seed business,” the Citi report added.