The Rising Influence of Rising Affluence

[DewDiligence]

MON +5% to 6-year high on aggressive 5-year EPS guidance and new $10B buyback:

http://online.wsj.com/articles/monsanto-profit-falls-6-10-billion-buyback-plan-unveiled-1403699602

Monsanto Co. it expects to at least double profits over the next five years [i.e. from FY2014 to FY2019] as farmers buy more of its biotech seeds and it expands its nascent business in high-tech planting services.

…Monsanto is basing its upbeat outlook for the remainder of the decade on it ability to breed sturdier seeds and develop new genetic traits that can resist a broader range of weedkillers and bugs. The world's largest seed company by sales is finding success selling new soybean seeds to South American farmers and expects corn-seed sales to ramp up in places like Eastern Europe… Overall, the seeds and genetic traits segment is expected to contribute more than $4 billion in additional profit over the next five years…

The profit projection also reflects Monsanto's decreased reliance on pesticides to drive growth, after an influx of generic replicas of Monsanto's signature Roundup weedkiller contributed to a roughly 45% slide in profit from 2009 to 2010.

…earnings also will be boosted by newer ventures such as its push into planting and weather analytics products sold to farmers [#msg-103577111]. Farmers now are using Monsanto's data services on more than 40 million acres of U.S. farmland, representing roughly one in five acres of corn and soybeans in the U.S. and ahead of Monsanto's earlier goal of 20 million acres…

For FY2014 (ending 8/31/14), MON narrowed the guidance range for non-GAAP EPS to $5.10-5.20 (from the prior range of $5.00-5.20). However, the bigger news item today is that MON will use balance-sheet cash plus the proceeds from a new bond issue (originally intended for the acquisition of SYT—see #msg-103617874) to repurchase an additional $10B of MON stock during the next two years; this is in addition to the $1B of repurchases remaining on the prior share-repurchase authorization. If the full $11B repurchase is implemented, it will reduce MON’s shares outstanding by about 17%.

Given the bullish 5-year EPS guidance and the aggressive new buyback plan, it’s not to see why the share price is soaring. At the current share price, MON is +184% from its Jul 2010 low of $44.61.