Monsanto Shares Pop Higher Midday Following Goldman Upgrade

Goldman Sachs analysts pointed out that the company preferred to be acquired due to slower growth profile despite enjoying a market leadership position for decades. They also blamed the regulatory issues for the slow pace of adoption of new product, especially Xtend Crop System. Aside from this, the agriculture sector also remains challenged.

The brokerage does not see any turnaround of prospects at least until the year 2018 citing cyclical factors weighing farmer economics. This only drove Monsanto to report weak earnings. The widespread resistance of glyphosate also weakened the company's advantageous position of its RoundUp franchise.

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"The proposed deal now faces regulatory review, which MON believes should be benign due to limited product overlap with Bayer AG (ADR) BAYRY. Nonetheless, investors appear to taking a wait and see approach as evidenced by a significant spread between today's closing price ($102) and the deal price ($128)," the lead analyst told clients in a research note.

Goldman Sachs indicated that there is no change in its estimates though it included M&A component in its revised target price. The brokerage cited denial of regulatory approval for the planned merger and erosion of Ag macros further as the downside risks while upside rewards included quick adoption of fresh product launches and improved seed pricing.

At time of publication, Monsanto was flat on the day at $102.09, while Bayer was down 0.75 percent at $99.77.

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