Monsanto's Long Turnaround Finally Being Realized (MON, DD, MOS)

Monsanto Co. (NYSE: MON) appears to finally be on the road to redemption.  The seed and ag giant showed a profit in its first quarter and it is not lowering expectations.  The earnings of about $6 million, or $0.01 EPS, compares to a loss of $19 million, or -$0.03 EPS, from a year earlier.  The figure from continuing operations was $0.02 EPS.  Revenues were up about 8% to $1.83 billion.  Thomson Reuters was calling for $0.02 EPS and $1.8 billion in revenues.

For 2011, Monsanto affirmed a free cash flow target of $800 million to $900 million.  More importantly, it forecast operational earnings of $2.72 to $2.82 EPS.  Thomson Reuters shows consensus at $2.79 EPS.  Earnings aside, there is much more to this turnaround.

The quarter tracked its operating plans in crops, as well as in geographies and products.  Those are expected to be drivers ahead.  Additional interest over its newest seed products in the U.S. is helping and it claims to be pleased with its R&D pipeline.  Frankly, much of this anticipation might have been cobbled together on some fronts after The Mosaic Co. (NYSE: MOS) gave earnings and an improving sector outlook for agriculture, potash and fertilizer in 2011.

Monsanto’s agricultural productivity business increased less than 1%, with sales of Roundup and other herbicides showing a gain of under 3%.  While that is not impressive, it does need to be noted that these had seen contractions before rather than gains.

Monsanto is one of those companies we listed which could be the next monopoly, and some argue that it is or was already.  DuPont (NYSE: DD) is a formidable competitor.  Shares used to trade well over $100 per share but that had fallen to under $50.

Wall Street and Main Street investors are voting, at least so far this morning, that it is in a turnaround and turning successfully.  Shares are up nearly 3% at $71.15 against a 52-week range of $44.61 to $87.06.  Shares are now up more than 40% in the last 90-day period.

The valuations here are still elevated, but that is the price of getting into a turnaround for a while.  This turnaround appears to be getting better traction.

JON C. OGG