Fertilizer Stocks

Monsanto Company Valuation – January 2016 Update $MON

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Monsanto Company (MON) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Monsanto Company (Monsanto) is a provider of agricultural products for farmers. The Company’s seeds, biotechnology trait products, and herbicides provide farmers with solutions that improve productivity, reduce the costs of farming, and produce better foods for consumers and better feed for animals. It manages business in two segments: Seeds and Genomics, and Agricultural Productivity. Through its Seeds and Genomics segment, it produces seed brands, including DEKALB, Asgrow, Deltapine, Seminis and De Ruiter, and it develops biotechnology traits that assist farmers in controlling insects and weeds. Through its Agricultural Productivity segment, it manufactures Roundup brand herbicides and other herbicides and provides lawn-and-garden herbicide products for the residential market.

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Here is a free sample valuation pdf, and here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of MON

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $40,455,449,990 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.23 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 62.64% Pass
6. Moderate PEmg Ratio PEmg < 20 18.09 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 11.14 Fail
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.23 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 4.14 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

MON value chart January 2016

EPSmg $4.83
MG Growth Estimate 7.66%
MG Value $114.95
Opinion Fairly Valued
MG Value based on 3% Growth $69.98
MG Value based on 0% Growth $41.02
Market Implied Growth Rate 4.80%
Current Price $87.32
% of Intrinsic Value 75.96%

Monsanto Company does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio and the high PB ratio.  The Enterprising Investor is concerned by the level of debt relative to the current assets.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities at this time or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $3.19 in 2012 to an estimated $4.83 for 2016.  This level of demonstrated earnings growth supports the market’s implied estimate of 4.8% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Monsanto Company (MON)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

MON charts January 2016

Net Current Asset Value (NCAV) -$16.34
Graham Number $29.85
PEmg 18.09
Current Ratio 1.23
PB Ratio 11.14
Dividend Yield 2.30%
Number of Consecutive Years of Dividend Growth 18

 

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Most Recent Balance Sheet Figures

Balance Sheet Information Nov15
Total Current Assets $10,467,000,000
Total Current Liabilities $8,501,000,000
Long-Term Debt $8,131,000,000
Total Assets $21,446,000,000
Intangible Assets $5,190,000,000
Total Liabilities $17,887,000,000
Shares Outstanding (Diluted Average) 454,100,000

Earnings Per Share History

Next Fiscal Year Estimate $4.90
Aug15 $4.81
Aug14 $5.22
Aug13 $4.60
Aug12 $3.79
Aug11 $2.96
Aug10 $1.99
Aug09 $3.77
Aug08 $3.62
Aug07 $1.79
Aug06 $1.25
Aug05 $0.47
Aug04 $0.50
Aug03 $0.13
Dec02 -$3.25
Dec01 $0.57
Dec00 $0.29
Dec99 $0.29

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $4.83
Aug15 $4.62
Aug14 $4.25
Aug13 $3.65
Aug12 $3.19
Aug11 $2.87
Aug10 $2.71
Aug09 $2.78
Aug08 $2.03
Aug07 $1.10
Aug06 $0.44
Aug05 -$0.08
Aug04 -$0.36
Aug03 -$0.65
Dec02 -$0.83
Dec01 $0.33
Dec00 $0.17

Recommended Reading:

Other ModernGraham posts about the company

5 Undervalued Companies for the Defensive Investor Near 52 Week Lows – September 2015
15 Best Stocks For Value Investors This Week – 9/4/15
Monsanto Company Analysis – September 2015 Update $MON
Monsanto Company Quarterly Valuation – June 2014 $MON
17 Companies in the Spotlight This Week – 3/29/14

Other ModernGraham posts about related companies

Mosaic Company Valuation – October 2015 Update $MOS
CF Industries Holdings Inc. Analysis – September 2015 Update $CF
Monsanto Company Analysis – September 2015 Update $MON
Mosaic Company Analysis – July 2015 Update $MOS
CF Industries Holdings Analysis – June 2015 Update $CF
Mosaic Inc. Quarterly Valuation – April 2015 $MOS
CF Industries Holdings Inc. Quarterly Valuation – March 2015 $CF
Mosaic Company Quarterly Valuation – January 2015 $MOS
CF Industries Holdings Inc. Quarterly Valuation – December 2014 $CF
Mosaic Company Quarterly Stock Valuation – October 2014 $MOS

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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