The Rising Influence of Rising Affluence

[DewDiligence]

Re: Taking stock of MON

Other than MON's EPS and [free-cash-flow] guidance on the low end of the projected range, I see nothing too alarming. I haven't listened to the conference call, am I missing something here?

Today’s sell-off was partly a reaction to the modestly lowered FY2015 guidance*, but (IMO) the sell-off was also driven by MON’s continued pursuit of SYT and the statement on the CC that, one way or another, MON intends to make chemicals a bigger part of its business. Today, MON announced a $1B investment spread over the next five years to build a dicamba factory.

MON’s desire to bulk up in chemicals—and thereby dilute its business in seeds and traits—presents a credibility issue for management insofar as MON had been telling investors until recently that it was moving in the opposite direction—i.e. toward becoming more of a pure play in seeds and traits. This strategic change makes one think the long-term prospects for the seeds and traits business may not be as promising as the company had been saying.

All told, I still consider MON one of the premiere beneficiaries of The Global Demographic Tailwind, but I’m not as bullish as I was before MON revealed its change in direction.

p.s. An additional concern I have due to the low cost basis of my shares is that a MON-SYT tax inversion would make my unrealized gains immediately taxable.

*The new FY2015 non-GAAP EPS guidance is the low end of the $5.75-$6.00 range; the old guidance was simply $5.75-6.00.