Monsanto's 2011 R&D Pipeline - Analyst Blog

Monsanto Company (MON) announced nine project advancements in the research and development (R&D) pipeline for fiscal 2011.

The alliance with Germany-based BASF Plant Science for the yield and stress project, is the most important, which includes Nitrogen-utilization Corn, second-generation higher-yielding soybeans and higher-yielding/stress tolerant wheat.

Although the agricultural productivity segment has encountered significant market changes last year, Monsanto's pipeline of agricultural biotechnology products stands unmatched in the industry. Further, Monsanto announced its intention to increase the production capacity of glyphosate, a major product of that segment, which is expected to boost net revenue in the coming years.

We are also optimistic on Monsanto based on the improved visibility on the yield performance of its SmartStax corn seed and RR2Y soybean seed in future. SmartStax and RR2Y posted a decent yield on completion of its 95% harvest in fiscal 2010, which enhances our long-term perspective on the stock.

In the first quarter of fiscal 2011, revenues inched up 7.8% to $1,830 million from $1,697 million during the same period in the previous year based on the 12.8% increase in revenues from Seeds and Genomics segment, which contributed approximately 64% of total revenue in the first quarter of fiscal 2011.

EPS (excluding restructuring expense) was 2 cents compared with a loss  of 2 cents in the year-ago quarter and a penny per share as per the Zacks Consensus Estimate.

For fiscal 2011, management expects EPS in the range of $2.72–$2.82 and anticipates free cash flows in the range of $800–$900 million.

However, we are concerned about the decrease in the prices of Roundup herbicides, which impacted the fiscal 2010 EPS of $2.41, almost half of $4.41 in fiscal 2009. Further, an intensely competitive environment poses additional challenges for the company.

Monsanto competes head-to-head with Syngenta AG (SYT). We maintain our Neutral recommendation on the stock. The stock at present retains its Zacks #3 Rank (short-term Hold rating).

 
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