Monsanto (MON): Captial Redeployment Trumps Lower Earnings Quality, Says Goldman Sachs

Goldman Sachs maintained a Buy rating on Monsanto (NYSE: MON) with a price target of $125. Analyst Robert Koort commented on Q3 results and guidance. In his view, capital redeployment trumps lower earnings quality.

"MON raised its FY2014 EPS guidance to $5.10-$5.20 from $5.00-$5.20 vs. our/consensus estimates of $5.24/$5.25. This implies 4QFY14 EPS of -$0.24 to -$0.34 vs. our/Street estimates of -$0.18/-$0.12. While the quality of the 3Q14 earnings beat was not great (with Roundup and tax rate driving the outperformance) and the guidance raise was below expectations, we believe that it will be outweighed by the sheer size of the share repurchase program," said Koort.

"At $10bn over two years, the share repurchase authorization exceeds both our expectations and the expectations of every client with whom we spoke. MON also introduced a target leverage ratio of 1.5x by the end of FY2015 to support these repurchases. As indicated by recent media reports, it appears that MON is shifting its capital redeployment strategy from acquisitions to share repurchases and will be more aggressive going forward, which we view as a positive. Additionally, we view the 5-year growth plan calling for mid-teens CAGR to over $10 of EPS in 2019 as an endorsement of continued growth opportunities at MON," he added.

For an analyst ratings summary and ratings history on Monsanto click here. For more ratings news on Monsanto click here.

Shares of Monsanto closed at $120.63 yesterday.

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