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Stock Strategist

Monsanto Still Underappreciated by Market

The company's not getting credit for its long-term innovation-driven growth prospects.

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 Monsanto's (MON) fiscal second-quarter results held few surprises. As expected, the company continues to battle several headwinds, including compressed grower margins caused by languishing crop prices, competitor discounting, Argentine currency devaluation, and lower glyphosate pricing. Taken together, these factors are likely to push Monsanto's fiscal 2016 earnings per share below the fiscal 2015 level, an unfamiliar situation for a company that has experienced steady profit growth over the past five years. With management leaving its 2016 EPS guidance intact and no change to our long-term outlook, we are holding our $120 fair value estimate and wide moat rating steady.

Past fiscal 2016, we think Monsanto's growth is set to reaccelerate, as we see this year as only a hiccup for a wide-moat company and clear leader in crop biotechnology. Our long-term outlook assumes crop prices, relevant currencies, and glyphosate pricing will stabilize near current levels, with incremental growth for Monsanto driven not by improvement in these outside (and uncontrollable) factors, but rather by the continued monetization of the company's innovative product lineup and pipeline.

Jeffrey Stafford does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.