On Dec 30, 2013, we upgraded our recommendation on Syngenta AG (SYT) to Neutral from Underperform. The company has been endeavoring to streamline its asset portfolio to focus on profitable ones.
Why the Upgrade?
Syngenta is well positioned to benefit from the rising demand in the agricultural sector. With increase in demand, farmers look for options to enhance productivity of the same piece of land. The company has high growth potential in certain regions including Europe, Africa and the Middle East (:EAME), Latin America and the Asia Pacific.
Moreover, Syngenta is attempting to increase its market share by steadily launching products, most of which have been successful. Products like Syngenta’s Amistar Technology and Vibrance are driving the revenues. These launches, along with other prospective ones are likely to lead to record sales in the coming quarters.
Syngenta closely monitors its productive assets and hives-off the non-core ones. Recently, the companyentered into an agreement with Pacific Trellis Fruit LLC to sell its Dulcinea Farms business. The business generated roughly $80 million in revenues annually.
However, Syngenta’s overseas operations expose it to foreign currency translation risks. The company’s third-quarter 2013 trading performance was favorable. Sales in the reported quarter increased 8% year over year to $2.9 billion. This was led by a rise in revenues across all the regions, especially Latin America which witnessed a year-over-year sales hike of 11%. The company expects underlying earnings per share in 2013 to be close to $19.70. Considering the present scenario, Syngenta aims to achieve earnings before interest, taxes, depreciation and amortization (:EBITDA) margin in the 22%–24% range.
Other Stocks to Consider
Syngenta currently carries a Zacks Rank #3 (Hold). Other better-ranked stocks in the industry include The Andersons, Inc. (ANDE), Gruma S.A.B. de CV (GMK) and Ferro Corporation (FOE). While The Andersons and Gruma S.A.B. hold a Zacks Rank #1 (Strong Buy), Ferro has a Zacks Rank #2 (Buy).