Earnings Preview: Monsanto
St. Louis-based seed, biotechnology trait and herbicide producer Monsanto (NYSE: MON), is scheduled to release its quarterly earnings results on Tuesday prior to the opening bell.
This is a stock that investors will want to keep an eye on tomorrow. The shares have broken out to new multi-year highs heading into the key report, and could have more upside in the wake of strong results. Over the last year, MON has risen almost 24 percent, outpacing the broader market.
In some sense, Monsanto is a turnaround story. Despite being the world's leading biotechnology seed company for many years Monsanto fell on hard times in 2010. After trading as high as $140 prior to the financial crisis, the stock briefly traded below $50 in June of that year. The performance was so bad, that CNBC market-guru Jim Cramer quipped "This may be the worst stock of 2010."
The problems at the company centered around guidance which was too optimistic and a string of disappointing product launches. When the company's products did not meet the expectations of farmers, Monsanto was forced to slash its prices to protect market share. Competition to its Roundup line from from low-priced generic products made in China also hurt the company's financial performance.
In hindsight, the troubles as the company turned out to be an excellent buying opportunity. The stock has been riding a very strong trend in the agricultural products space and Monsanto's financial performance has turned around. Both net income and revenue has been up for the last three years and Wall Street is modeling more growth in 2013.
For the upcoming quarter, analysts have consensus earnings per share estimates of $0.37. This implies a year over year earnings increase of 61 percent versus the $0.23 the company reported last year. The high estimate on Wall Street is $0.45 with a low estimate of $0.30.
Revenues are expected to be $2.64 billion. This is eight percent above the $2.44 billion that Monsanto reported in last year's corresponding quarter. The high estimate on the Street is $2.75 billion with a low estimate of $2.46 billion.
Over the last 90 days, analysts have become slightly more bullish on the company's earnings outlook, raising estimates for the November quarter by a penny from $0.36 and lifting expectations for the February quarter by three pennies to $2.60.
The uptrend in the stock is not only firmly intact, but it has been accelerating in recent months. Investors will want to see strong, if not spectacular, results from Monsanto in order to feel confident that the bullish story is still on track.
Investors will also be looking for any guidance that Monsanto provides about the upcoming quarter which is by far the most important of the year. The February quarter is when the company books most of its annual earnings and revenue as farmers put in orders to prepare for the planting season.
Wall Street is currently modeling EPS of $2.60 on revenues of $5.21 billion for the February quarter. The stock could react significantly if the company provides any commentary or updated financial guidance, particularly if it is considerably above or below current expectations for the upcoming quarter. On Monday, ahead of Tuesday morning's report, MON was last down very slightly to $95.83.
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