Monsanto (MON) Found its Floor - Jefferies

Jefferies analyst, Laurence Alexander, raised his PT on Monsanto (NYSE: MON) to $102 from $98 but maintained his Hold rating. He believes the stock has found its valuation floor and can grow with if not outperform the ag cycle.

At 10% above the S&P 500 multiple, Monsanto has likely found a valuation floor, making 2016-2017 validation years. Datapoints this summer could help settle the degree to which Monsanto can decouple and outperform the ag cycle.

Monsanto has consistently pegged its US corn yield advantage at 7-10 bu/acre: we expect better in inclement weather, and a step-up by ~2020 on next-gen breeding. Germplasm pricing should sustain >2% in the US, and >6% in Latin America (to catch up to F/X).

Share in core soy and corn should be flat to positive, with gains as the $25bn R&D pipeline addresses new value propositions (e.g., disease resistance, abiotic stress, nitrogen efficiency, >30% increase in density).

Xtend should reach 3-4m acres, with an upsell of $5-$10/bu. Dicamba should continue to be framed as a 250m acre opportunity ($1bn investment program). We expect the Climate Corp software offering to improve from an $10-$20m this year (>12m paid acres) to ~$300m by the end of the decade (~$0.30 to EPS), whereas BioAg "blue sky" could add >$2 to EPS by 2025 (if >$30/acre value creation and a third value capture, etc.).

Following the most recent two rounds of ag consolidation announcements, the topic of a possible bid by BASF has been raised. A full bid would be a radical departure for BASF: for example, a $100 offer, with returns matching a buyback by FY5 (Eur0.65 accretive, or Eur3.05 after buybacks), would require significant equity issuance (est'd 50%) and only be ROIC neutral >2022.

The $102 PT (up from $98) at 17x 2017E is based on a blend of mid-cycle and peer valuations.

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 $91.25 yesterday.

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