Replies to post #93787 on Biotech Values

[DewDiligence]

MON:

So then the implicit forecast for 2012 was cut ~50%?

Not exactly. The prior FY2012 guidance did not include an EPS forecast per se, but rather an amount of gross profit—the line on the P&L that comes before SG&A, R&D, interest, and taxes. Various analysts had modeled what the prior gross-profit guidance implied vis-à-vis non-GAAP EPS and came up with figures for FY2012 ranging from $4.75-6.00. Hence, the $4.10 midpoint of the new FY2012 EPS guidance range of $3.96-4.24 is roughly a 15-30% cut relative to analysts’ prior models.

How did this result in a positive reaction? Did no one believe the "double 2007 income in 2012" forecast in the first place?

I suspect that few if any analysts and institutional investors accepted the prior FY2012 guidance, hook, line, and sinker.

[DewDiligence]

Barron’s is still bullish on MON. (See #msg-48717826 for the WSJ’s take.)

http://online.barrons.com/article/SB127059304915972955.html

›We Still Dig Monsanto

By TERESA RIVAS
APRIL 7, 2010

…Despite the contraction in gross margin, operating and profit margins at 26% and 14%, respectively, have held up well in the past year as have average returns on equity and assets, at 15% and 10%. On all these metrics (except yield) Monsanto looks better than Swiss competitor Syngenta (SYT).

Analysts expect Monsanto stock to gain more than 20% by year-end. And the company has a long-term earnings growth rate of 15%. This is fostered by the value of the company's intellectual property, as it produces new and more efficient seeds able to fight off pests above and below ground, as well as produce higher crop yields. As Barron's wrote late last year [#msg-44000346], these new offerings should boost its dominant seeds business, which will contribute as much as 85% to company profits by 2012, from roughly two-thirds today.

With the approach of these new products, and controversy about its pricing policy on herbicides receding (a division which itself will contribute less to the bottom line going forward), many on Wall Street expect the shares to surpass $100, a gain of almost 50% from current levels.

Granted, Wednesday's earnings report wasn't great news, but investors have long speculated that the company's five-year plans were too ambitious. So Monsanto admitting that it will fall short isn't a shocking blow (the stock's reaction reinforces that idea). Also, by abandoning this goal, the company said on its conference call that funds will not be siphoned away from research and development toward the bottom line -- good news for long-term investors given Monsanto's enviable intellectual edge.

Another positive is the fact that its main driver continues to gain traction, both domestically, where it has 80% market share, and overseas. Revenue in the quarter for seeds and genomics increased 7%, with corn seed and traits sales up 8% on strong growth in Brazil, the U.S. and Argentina.

Therefore, a great quarter would of course have been better news, but Monsanto's fundamentals, long-term edge and market-leading position remain intact, with new-product drivers poised to contribute to future growth. Thus, Monsanto investors should watch their green grow.‹