ModernGraham Valuation: Monsanto Company (MON)

moneyCompany Profile (obtained from Google Finance): Monsanto Company (Monsanto) along with its subsidiaries, 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. In April 2010, the Company completed the acquisition of a corn and soybean processing plant located in Paine, Chile from Anasac, a company that provides seed processing services. In November 2013, the Company announced that it has completed the acquisition of The Climate Corporation.

Defensive and Enterprising Investor Tests (What is the significance of these tests, and what is PEmg ratio?):

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – PASS
  3. Earnings Stability – positive earnings per share for at least 10 straight years – PASS
  4. Dividend Record – has paid a dividend for at least 10 straight years – PASS
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – FAIL

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – PASS
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – PASS
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – PASS

Valuation Summary (Explanation of the ModernGraham Valuation Model)

Key Data:

MG Value $67.30
MG Opinion Overvalued
Value Based on 3% Growth $52.88
Value Based on 0% Growth $31.00
Market Implied Growth Rate 11.51%
Net Current Asset Value (NCAV) $3.73
PEmg 31.52
Current Ratio 2.32
PB Ratio 4.84

Balance Sheet – 8/31/2013 

Current Assets $10,077,000,000
Current Liabilities $4,336,000,000
Total Debt $2,061,000,000
Total Assets $20,664,000,000
Intangible Assets $4,746,000,000
Total Liabilities $8,105,000,000
Outstanding Shares 529,030,000

Earnings Per Share

2013 $4.58
2012 $3.78
2011 $2.96
2010 $2.01
2009 $3.78
2008 $3.59
2007 $1.66
2006 $1.27
2005 $0.29
2004 $0.51
2003 $0.00
2002 $0.28

Earnings Per Share – Modern Graham 

2013 $3.65
2012 $3.19
2011 $2.87
2010 $2.70
2009 $2.74
2008 $1.97


Monsanto Company passes all of the requirements of the Enterprising Investor, but not the Defensive Investor.  The company currently has PEmg and PB ratios that are too high for that investor type.  However, the Enterprising Investor is willing to take on a little more risk and as a result has some less stringent requirements.  The company has a strong dividend history and stable earnings growth, a very good current ratio and low debt.  As a result, Enterprising Investors should feel comfortable proceeding with further research, perhaps beginning with a review of ModernGraham’s valuation of Du Pont.  From the valuation side of things, the market is currently implying a growth rate of 11.51% and while there has been substantial growth in earnings, the historical performance does not support the implied growth rate.  Consequently, the company would appear to be overvalued today and Enterprising Investors may wish to wait for a better opportunity for profit.

What do you think?  Do you agree that Monsanto Company is overvalued?  What would be your assessment?  Is the company suitable only for Enterprising Investors?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author did not hold a position in Monsanto Company (MON) at the time of publication and had no intention of entering into a position within the next 72 hours.

Photo Credit:  Andrew Magill

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