Monsanto Company (MON) Quarterly Valuation – March 2014

500px-Monsanto_logo.svgBenjamin 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.  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 specific look at how Monsanto Company fares in the ModernGraham valuation model.

Company 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.

MON Chart

MON data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 4/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  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

Key Data:

Recent Price $113.16
MG Value $107.19
MG Opinion Fairly Valued
Value Based on 3% Growth $61.23
Value Based on 0% Growth $35.89
Market Implied Growth Rate 9.15%
Net Current Asset Value (NCAV) $1.89
PEmg 26.80
Current Ratio 1.87
PB Ratio 4.72

Balance Sheet – 11/30/2013

Current Assets $12,496,000,000
Current Liabilities $6,698,000,000
Total Debt $3,057,000,000
Total Assets $24,077,000,000
Intangible Assets $5,692,000,000
Total Liabilities $11,505,000,000
Outstanding Shares 524,940,000

Earnings Per Share

2014 (estimate) $5.15
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

Earnings Per Share – ModernGraham

2014 (estimate) $4.22
2013 $3.65
2012 $3.19
2011 $2.87
2010 $2.70
2009 $2.74

Dividend History

MON Dividend Chart

MON Dividend data by YCharts


Monsanto is suitable for the Enterprising Investor but not the Defensive Investor due to the low current ratio, and high PEmg and PB ratios.  The company passes every requirement of the Enterprising Investor, though, and should remain on the investor type’s watch list.  In addition, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research, including a review of ModernGraham’s valuation of E I Du Pont de Nemours and Co. (DD) and ModernGraham’s valuation of Dow Chemical (DOW).  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.70 in 2010 to an estimated $4.22 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 9.15% earnings growth and leads the ModernGraham valuation model to return an estimate of intrinsic value that falls 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.

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) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.

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