Zacks_Analysts' Blog : Monsanto Discards Mini-Offer - Analyst Blog

Monsanto Company (MON) rejected the mini buy-out offer of TRC Capital Corporation, a private firm founded by a Canadian securities lawyer, to acquire 2 million shares at $54.15 per share.

The offer was discarded as the price was below the trading price on that day. Monsanto has been posting weak numbers since the beginning of fiscal 2010. During fiscal 2010 ending August 2010, EPS (excluding restructuring expense) almost halved to $2.41 from $4.41 last year.

However, we remain optimistic about Monsanto’s prime focus on innovation and upgradation of technology coupled with increasing production. Recently, the company plans to increase production of its SmartStax corn seeds, the most durable and highest-yielding package for total weed and bug control. SmartStax, which is planted on 3 million acres out of a total of 32 million acres in the U.S., is expected to cover 15 million acres in fiscal 2011 and an additional 9 million acres in fiscal 2012.

Corn seeds and traits contributed approximately 40.6% of total revenues in fiscal 2010. Monsanto also intends to increase corn plantation in Argentina, the world’s second-largest corn exporter, to 52%. Thus, increased production will enhance sales and raise profit driven by higher economies of scale.

We also bank on the company’s market leadership and remain optimistic on the near-to-mid-term performance. Moreover, Monsanto’s capabilities in biotechnology and breeding research are generating a rich product pipeline, which is expected to drive long-term growth.

However, we are concerned about the slower market recovery and an intensely competitive environment. Hence, we reiterate our Underperform Recommendation in line with the stock’s current Sell rating, equivalent to a Zacks #4 Rank.