MONSANTO CO. $105 (New York symbol MON, Aggressive Growth Portfolio; Manufacturing & Industry sector; Shares outstanding: 533.8 million; Market cap: $56.0 billion; Price-to-sales ratio: 3.8; Dividend yield: 1.4%; TSINetwork Rating: Above Average; www.monsanto.com) recently won a major patent-infringement lawsuit. The dispute arose after a farmer in Indiana, who grew soybeans using Monsanto’s herbicide-resistant seeds, used the resulting seeds for future crops instead of buying more.
Monsanto gets over 70% of its revenue by selling genetically modified seeds, so allowing farmers to replant these seeds would have significantly hurt the company’s prospects. The remaining 30% comes from pest- and weed-control products.
Meanwhile, Monsanto earned $1.5 billion, or $2.74 a share, in the three months ended February 28, 2013. That’s up 22.5% from $1.2 billion, or $2.24 a share, a year earlier. If you disregard unusual items, mainly costs to clean up contamination at a chemical plant in West Virginia, earnings per share would have risen 19.7%, to $2.73 from $2.28. Sales rose 15.2%, to $5.5 billion from $4.7 billion. That’s mainly due to strong sales of its corn seeds in Brazil.
The company’s shares have gained 22.1% since we first recommended Monsanto at $86 in our November 2012 issue. The stock now trades at 22.9 times the $4.58 a share that the company will likely earn in the fiscal year ending August 31, 2013. However, Monsanto spends a high 11% of its sales on research, so it’s more profitable than it seems. The $1.50 dividend yields 1.4%.
Monsanto is a buy.
