The countries of the European Union yesterday, Nov. 27, voted for a five-year renewal of the glyphosate weed killer’s license, the essential ingredient in Roundup, one of Monsanto (MON, Financial)'s products, Returers reported.
Eighteen EU countries endorsed the EU Commission’s proposal for a five-year extension, while nine countries voted against and one country chose not to express a preference.
The use of glyphosate started to be questioned in 2015 when the World Health Organization’s cancer agency said that the ingredient is probably related to cancer.
However, the European Chemical Agency stated in March this year that the evidence that the ingredient causes cancer in humans is absent.
Investors in Monsanto are of course satisfied with this news since Roundup is one of the key drivers of the company’s sales, which already had a boost in 2017, growing 8.44% to $14.64 billion from $13.50 billion at the end of 2016.
Analysts will likely revise their estimates on Monsanto’s earnings and sales upwards after forecasting $5.68 per share and $15.2 billion. Both figures are averages and represent increases of 3.3% and 3.80% from full fiscal 2017.
However, the news on the five-year license extension on Roundup will for sure have a positive impact on the market value of Monsanto over the coming weeks, making the stock more appealing today.
Monsanto looks overvalued by the stock market at the moment since it is trading over the Peter Lynch line.
Yesterday, following the news, Monsanto closed up 24 cents, or 0.20%, from the previous trading day, at $118.37 per share on the New York Stock Exchange.
The company has a market capitalization of $52.11 billion, a price to book (P/B) ratio of 8.08 versus an industry median of 1.91, a price to sales (P/S) ratio of 3.58 versus an industry median of 1.31 and a price to earnings (P/E) ratio of 23.26 versus an industry median of 23.77. It also has a dividend yield of 1.83 since the company distributes an annual dividend of $2.16 per share to its shareholders through quarterly payments of 54 cents per share.
The dividend yield is higher than the S&P 500's current dividend yield of 1.85%.
Analysts set a price target of $125.18 per Monsanto share, which is a 5.8% upside from the current market valuation. Analysts will also likely revise their target share prices upwards within the next 12 trading months following yesterday’s news.
The recommendation rating is 2.6 out of 5.
Disclosure: I have no positions in Monsanto.
