We downgrade our recommendation on Monsanto Company (MON) from Neutral to Underperform based on its weak results during the two consecutive quarters in fiscal 2010. Moreover, the company’s guidance for the fiscal year 2010 has dropped below fiscal 2009 results.
EPS and revenue are expected to fall approximately 20% and 5% year over year. During the second quarter of fiscal 2010, revenue slipped 3.6% and so did the EPS by 18.4%. The decrease was attributable to fall in prices of glyphosate-based herbicides produced by the company.
The company deals with highly competitive products. The global market for products from the seeds and genomics segment has been experiencing growing competition. Both the row crops and vegetable seed businesses compete with numerous multinational agrichemical and seed marketers globally, and with hundreds of smaller companies regionally.
Biotechnology traits compete as a system with other practices, including the application of agricultural chemicals, and traits developed by other companies. Monsanto’s agricultural herbicide products have numerous major global competitors who have increased production, which, coupled with purchases from local generic companies, has increased channel inventory for generic glyphosate. The company competes directly with Switzerland-based Syngenta AG (SYT).
Monsanto’s revenue generation capacity depends on a few large customers. During 2009, the three largest U.S. agricultural distributors and their affiliates represented 18% of the company’s worldwide net sales and 33% of the U.S. net sales in aggregate. One major U.S. distributor and its affiliates represented about 10% of the worldwide net sales for the seeds and genomics segment, and about 9% for the agricultural productivity segment. Thus, massive dependence on few large customers is also discouraging.
Thus, we downgrade our recommendation on the stock.
Read the full analyst report on “MON”
Read the full analyst report on “SYT”
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