Monsanto Stock Strength Is Great for These ETFs


Recently, Monsanto Company (MON) came up with mixed results for 3Q14 with earnings beating the Zacks Consensus Estimate by a wide margin but revenues falling short. This provider of agricultural products has, however, raised its full-year outlook, announced a 2-year buyback program worth $10 billion and summarized a five-year growth plan which cheered up investors and pushed up its shares in the session following the news release.

3Q Earnings in Focus

The company reported earnings from continuing operation of $1.62 per share, down 2.4% from the year-ago quarter, but 4.5% ahead of the Zacks Consensus Estimate. Strong business from seeds and traits might have led to this outperformance. Third-quarter revenues of $4.25 billion, almost flat year over year, fell shy of the Zacks Consensus Estimate of $4.39 billion.

Though there was not much spark in the quarterly results, the real boost came in the form of guidance. Seeds and Genomics segment sales are expected to grow in the coming quarter. As per management, global corn portfolio will act as a key driver in Monsanto’s growth story (read: 4 Agricultural Commodity ETFs Soaring in 2014).

Thank to this, management raised its on-going EPS guidance for full year to $5.10 to $5.20 per share range from $5.00 to $5.20. On an as-reported basis, the company expects to earn $5.12 to $5.22 per share, up from the previous range of $5.02–$5.22. On top of it, the company intends to double earnings per share by 2019. 

The company also elevated its full-year free cash flow outlook to the upper end of the previous projection of $700−$800 million. Aided by improved liquidity, Monsanto plans to buy back $10 billion worth shares while it seeks to utilize nearly $6 billion in an accelerated share repurchase in the near term, per management.
MON currently has a Zacks Rank #3 (Hold).

ETF Impact

Courtesy of an earnings beat and an optimistic outlook, shares of Monsanto jumped over 5% in the key trading session on Wednesday on elevated volumes which were six times higher than regular trading (read: John Deere Earnings Put Agribusiness ETFs in Focus).

Monsanto has a sizable exposure in various agricultural and materials ETFs like MSCI Global Agriculture Producers ETF (VEGI), Materials Select Sector SPDR (XLB), iShares U.S. Basic Materials ETF (IYM) and Market Vectors-Agribusiness ETF (MOO). This suggests that the performance of these funds is highly dependent on Monsanto. Below, we have highlighted some of these ETFs in detail:

VEGI in Focus

This global ETF looks to track the MSCI ACWI Select Agriculture Producers Investable Market Index and invests about $43.6 million of assets. In its 121-stock portfolio, the in-focus Monsanto takes the top spot with 15.75% allocation.

Sector-wise, materials take the top position with 53.2% share followed by food and beverages (21.6%). Country-wise, the U.S. accounts for about half of the portfolio while Canada (11.6%) and Switzerland (9.0%) occupy the next positions.

The ETF charges about 39 bps in fees a year and has a dividend yield of 1.48%. The fund has gained about 2.3% in the year-to-date time frame (as of June 25, 2014) while it added 0.54% in the key trading session.

XLB in Focus

Investors looking to tap the rise in Monsanto in ETF form can also invest in XLB. Here also, Monsanto takes up the top position with 10.4% of assets. The fund’s asset base of $5.4 billion is spread across 32 securities (read: 3 Sector ETFs for This Shaky Market).

The fund appears to be quite popular as indicated by its trading volume of more than 4.5 million shares a day. The ETF relies heavily on the chemical sector which accounts for 73.9% of the asset base. XLB charges a fee of 16 basis points annually. The fund has recorded a gain of 8.3% on the year-to-date basis and was up 0.79% in the key session.

IYM in Focus

This fund follows the Dow Jones U.S. Basic Materials Index, holding 59 stocks in its basket. Again, Monsanto takes the top spot at 9.3%. From a sector perspective, Chemicals make up for 76% of assets.
The ETF is also popular, with about $1.1 billion in AUM while its expense ratio came in at 0.44%. The fund was up over 7.71% from the year-to-date look while the fund added about 0.82% in the key trading session.

MOO in Focus

Like VEGI, this fund provides exposure to the global agribusiness industry by tracking the Market Vectors Global Agribusiness Index. It is a pretty popular choice in the space with AUM of over $2.6 billion. The ETF charges 55 bps in annual fees (read: Reap Long Term Returns from These Agribusiness ETFs).
In total, the fund holds 52 securities in its basket. Of these firms, the stock under consideration – Monsanto –takes the first place yet again, making up roughly 8.49% of the total assets. In terms of country allocation, U.S. (49.1%), Canada (10.4%) and Switzerland (8.4%) occupy the top spots. The fund added nearly over 1.28% in the year-to-date time frame and 0.44% on June 25.

Bottom Line

As evident by the portfolio pattern above, most of the ETFs in this space have a huge holding in MON, suggesting the returns in this stock will drive the funds in the space. This year, Monsanto’s earnings beat the Zacks Consensus Estimate every quarter which helped the shares to gain about 8.96%.

Also, the recent buyout talks of Swiss agribusiness company Syngenta by Monsanto might give the latter a bit of a boost, if the deal materializes. Given this, investors could definitely take advantage of the likely surge in Monsanto and the evolving agricultural space via the aforementioned ETFs.
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