Monsanto Company (MON, Financial) is a publicly traded American multinational agrochemical and agricultural biotechnology corporation headquartered in Creve Coeur, Missouri. It is a leading producer of genetically engineered (GE) seed and of the herbicide glyphosate, which it markets under the Roundup brand.
Monsanto was one of the first companies to apply the biotechnology industry business model to agriculture, using techniques developed by Genentech and other biotech drug companies in the late 1970s in California. In this business model, companies invest heavily in research and development, and recoup the expenses through the use and enforcement of biological patents. Monsanto's application of this model to agriculture, along with a growing movement to create a global, uniform system of plant breeders' rights in the 1980s, came into direct conflict with customary practices of farmers to save, reuse, share and develop plant varieties. Its seed patenting model has also been criticized as biopiracy and a threat to biodiversity. Monsanto's role in agricultural changes, biotechnology products, lobbying of government agencies and history as a chemical company have made the company controversial.
Let’s take a look at the financials first.
ROIC: ROIC has been strong, stable and predictable for the last 10 years. TTM is 16.30%, which is in line with ROIC of the past three years.
ROA: ROA has been in the low teens for the last five years. ROA for the last 10 years has been somewhat predictable and consistent, although not as much as I’d like.
ROE: TTM ROE is 23.07%, which is similar to the past three years' ROE. ROE is stronger and more consistent than ROA, although I would not rate it at 5 stars for consistency.
Gross margins: Fantastic gross margins in low to mid-50% range. Gross margins have been very strong, consistent and predictable.
Net margins: TTM margin is 23.53%. It is very impressive and somewhat higher than net margins of the past 10 years.
Operating margin: TTM margin is 25.70%. Operating margin has been very consistent and strong throughout the past 10 years.
LT debt to total Assets: TTM is 37.72. This is an aberration from the past 10 years' figures, but nonetheless is a cause for concern.
Interest coverage: Current interest coverage is 17.
Current ratio: Current ratio has been basically in the low 2 range over the past 10 years.
Quick ratio: Quick ratio has been in the mid- to high 1 range over the past 10 years.
EPS (diluted): TTM $5.50. EPS have been on a rise of the past five years.
Gross profit: Strong rise in profits of the past 10 years.
SGA to gross profit: It has been predictably around the 0.3, or 30% range. This is an indication that Monsanto is very strong competitively.
Valuation
TTM P/E 17.42, Forward P/E 14.7, P/B 5.4, P/S 3.1, PEG ratio 1.56, EV/EBIT 13.12.
It is not exactly cheap, but it’s not very expensive either.
The company is fairly valued at this price so I would recommend buying on the dips/market decline/recession.
Other positives: Consistent dividends, history of share buybacks
Some negatives: High capital intensive industry, not stellar debt levels
Risks: Negative popular sentiment towards GMO, potential government regulation
