Monsanto: Morgan Stanley Still Likes Stock, But Cuts Target

• Monsanto Company MON shares have declined 26.68 percent year-to-date, hitting a low of $83.11 on September 28.
• Morgan Stanley’s Vincent Andrews has maintained an Overweight rating on the company, while lowering the price target from $120 to $110.
• Although the company has issued its guidance below expectations, Andrews believes that Monsanto could see meaningful growth in FY2017 and beyond.

“Assuming Monsanto can establish F2016 as the trough, we believe investors will ultimate see the stock at the intersection of value and growth, and reprice it accordingly,” the Morgan Stanley report stated, while mentioning that the investment thesis related to Intacta and Extend remained unchanged.

Although earning trends have been a cause for concern in recent times, Andrews expects both Intacta and Extend to see “high quality growth,” with the growth in Intacta acreage significantly ramping over the next three years.

Andrews also believes that “there is a built in price escalator in F2018 (end of a contractual rebate), not to mention modest pricing potential in F2017.”

However, the U.S. dollar strength versus the Brazilian real has materially reduced the pre-share buyback EPS opportunities for the company.

The FY2016 EPS estimate has been reduced from $5.95 to $5.10, to the low end of Monsanto’s guidance range.