Goldman Warns Of Monsanto Sell, At Odds With Wall Street

Goldman Sachs’ Robert Koort downgraded the rating for Monsanto Company MON from Neutral to Sell, while reducing the price target from $86 to $84. The recommendation of Sell comes even while most of Wall Street, including Deutsche Bank, Credit Suisse, Atlantic, Piper Jaffray, Canaccord Genuity, Morgan Stanley, UBS and Citi, have maintained positive [Buy equivalent] ratings.

Monsanto’s target of 20 percent plus EPS CAGR for FY17-FY19 could come under pressure due to poor farmer economics, elevated grain inventories and “recent company-acknowledged linkage between earnings growth rates and stagnant corn pricing (driven by oversupply),” analyst Robert Koort commented.

Weakness in ag markets, which are currently over-supplied, is likely to persist for the foreseeable future. Koort elaborated, “In the past, MON has been less tethered to corn pricing given its robust pipeline, the (now complete) evolution of the US ethanol market and its market leading trait penetration. These factors became more evident when the company warned on earnings this week and revised its FY2016 guidance downwards – causing an 8% equity erosion.”

Monsanto reduced its FY2016 EPS guidance from $5.10-$5.60 to $4.40-$5.10, reflecting tough current conditions. This would result in a revision in prior consensus expectations of a “sharp snapback” in growth in FY2017 and beyond. The analyst believes that there is significant risk to the current consensus EPS estimate for FY2017 as well as to the company’s prior medium-term target of ~$10 EPS in FY2019.