Monsanto (MON) sees growth in earrings estimates and could see a dividend hike in 2013. The stock is a Zacks #1 Rank (Strong Buy).
Monsanto Company provides agricultural products for farmers in the United States and internationally. It operates in two segments, Seeds and Genomics, and Agricultural Productivity. The Seeds and Genomics segment produces corn, soybean, canola, and cotton seeds, as well as vegetable seeds, including tomato, pepper, melon, cucumber, pumpkin, squash, beans, broccoli, onions, and lettuce seeds. The Agricultural Productivity segment offers glyphosate- based herbicides for agricultural, industrial, ornamental and turf applications as well as lawn-and-garden herbicides for residential applications and other herbicides for the control of annual grass and small seeded broadleaf weeds in corn and other crops. The company was founded in 2000 and is headquartered in St. Louis, Missouri.
Monsanto posts Six Straight Positive Earnings Surprises
Monsanto has topped the Zacks Consensus Estimate in each of the last six quarters. The six beats have come in on average more than $0.07 higher than the Zacks Consensus Estimate. On average, the positive earnings surprises were a healthy 27%. The stock has generally reacted positively when the company beats expectations. The stock was up 3.4% on average following the positive earnings surprises.
The largest price movement in the stock came the day after the company posted its second strongest surprise. The August 2011 quarter saw the company beat the topline estimate of $2 billion by posting revenues of $2.2 billion. The company posted an EPS loss of $0.22 was $0.05 higher than the Zacks Consensus Estimate. In the session following positive earnings surprise the stock increased by 12.7%.
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Monsanto's Most Recent Earnings
On April 4, 2012 Monsanto reported revenue of $4.7 billion, approximately $140 million higher than the Zacks Consensus Estimate and up from $4.1 billion reported in year ago quarter, an increase of 15%. In addition, earnings per share came in at $2.28, $0.16 higher than the Zacks Consensus Estimate of $2.12. The beat of 7% didn't end up helping the stock, which fell 3.4% in the session following the release.
Monsanto Sees Estimates Moving Higher
Monsanto has seen earnings estimates move higher following the recent positive earnings surprise. The Zacks Consensus Estimate for 2012 was as low as $3.42 in December 2011 and has since moved to $3.56.
Estimates for 2013 have also seen an increase following the most recent quarterly release. Over the same time period as the 2012 earnings estimate increase, the Zacks Consensus Estimate for 2013 stood at $4.03 and has since moved to $4.11.
The valuation for Monsanto is higher than the industry average on just about every multiple that aggressive growth investors tend to look at. The twelve month trailing PE of 20x is well above the 11.8x industry average, and the both multiples are the same for the forward PE. The price to book, a more conservative measure of value, has a 3.2x multiple for Monsanto compared to a 2.5x industry average. The price to sales multiple of 3x is well above the 0.8x industry average.
Now that I have covered the growth side of this play, let's take a look at the dividend. The company paid a $0.30 dividend on April 3, 2012. That brings the current yield to 1.6%. The previous two four quarters also saw $0.30 dividends. Prior to that, the company paid a full year of $0.28 dividends and that was an increase from $0.265 dividends paid starting back in April of 2009.
Monsanto holding the dividend steady through the recession gave dividend seekers the payment they were looking for as well as a harbor in the tempest. The recession caused many companies that were paying a dividend to reduce it or suspend it completely. Monsanto benefited from an existing strong balance sheet to maintain payment of the dividend.
A quick look at the price and consensus chart shows that earnings growth has returned to the stock in 2012. The stock, however has not really noticed as it has pretty much traded in an range over the last year and a half. The growth for MON looks to continue into 2013 and without a meaningful increase in stock price, look for the company to once again increase the dividend payout. Monsanto is a Zacks #1 Rank (Strong Buy).
Brian Bolan is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Home Run Investor service
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