Can a Killing Be Made From These Pest Killers?
Arturo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Pests that threaten both crops and humans have always been a bane for mankind. Investing in equities tied with pest control hence can be as rewarding as the benefits they bring in terms of improved agricultural productivity and the protection they provide to populations’ well-being.
One such probable choice is American Vanguard (NYSE: AVD), a company with a diversified interest in specialty and agricultural products for the crop protection, turf and ornamental markets, and for public health applications. One of its subsidiaries, AMVAC Chemical, has a diverse insecticide product portfolio which includes botanical and corn soil insecticides, as well as non-crop insecticides and public health insecticides. Repellents, soil fumigants, cotton defoliant, herbicides, plant growth regulators, and fungicides including those for non-crop applications are its other products.
A worldwide bug hunt
Rollins (NYSE: ROL) is another pest control company to consider. Rollins provides pest and termite control services not only to residential and commercial customers in North America. It also has international franchises in Mexico, Central America, the Caribbean, the Mediterranean, Asia, Europe, the Middle East, and Africa. The company operates via four wholly owned subsidiaries. One of these, Orkins, is reputedly the world’s largest pest and termite control company, with a presence in more than 400 locations.
Rollins reported its 28th consecutive quarter of earnings improvement as its 2013 first quarter revenue grew 3.5% to an unaudited $299.7 million from $289.5 million a year earlier. Net income for the 2013 first quarter was essentially flat at $23.2 million or $0.16 per diluted share, compared year over year with $23.1 million or $0.16 per diluted share.
Weather twist restrains growth
The company’s vice chairman and CEO, Gary W. Rollins, said an expected acceleration of pest control sales in the 2013 first quarter didn’t pan out as the past winter turned out to be the coldest with snowfall the greatest in decades. This had a negative impact on profits as the company was staffed for an anticipated pick-up in sales activity.
Notably, Rollins came off with record results in the 2012 first quarter due to the weather turning out as the warmest in more than a century, resulting in increased pest activity. The company remains geared for growth in the balance of 2013, particularly with the summer getting warmer. “Thankfully, the bugs always come back,” the Rollins CEO quipped.
Take more besides bugs
American Vanguard, on the other hand, has more than bugs to be go after as it posted record results for its 2013 first quarter. Strong demand for its corn herbicides and insecticides drove net sales for the period 39% higher to $121.5 million from $87.3 million a year earlier. The company’s net income advanced 94% to $16.9 million from $8.7 million, and earnings per diluted share rose 90% to $0.59 from $0.31.
One of American Vanguard’s main sources of strength is its co-marketing program with Monsanto (NYSE: MON), a sustainable agriculture company. This program, which was recently extended up to 2017, involves the inclusion of AMVAC Chemical’s post-emergent corn herbicide Impact in Monsanto’s weed management platform Roundup Ready PLUS, widely used by corn growers worldwide.
Firmer global push
Expecting continued growth from its global corn portfolio and better-than-anticipated strength in its agricultural productivity segment in its FY 2013 first half, Monsanto recently raised its guidance for the year. Monsanto’s guidance range was raised to $4.50–$4.55 on an ongoing basis and $4.52 –$4.57 on an as-reported basis, for 20% growth in ongoing earnings. It likewise projects its global corn business to achieve record total volumes with growth in the mid-teens.
International expansion is shaping up too as one of the growth drivers for American Vanguard this 2013. In July last year, its AMVAC Chemical subsidiary established a unit in the Netherlands to manage the sales, marketing, registration and finance as well as the supply chain of all ex-U.S. sales of the company’s products.
Additionally, more global opportunities in consumer household and lawn and garden retail markets can be expected in the joint venture American Vanguard forged in December 2012 with TyraTech. This partnership will harness TyraTech’s technology based on the synergy of natural ingredients to commercialize pesticide products and solutions. Its global playing field likewise includes markets for synthetic-based products with applications among commercial, institutional and professional users, including those for crop protection and seed treatment.
Final take: where the attractive valuation is
Monsanto and Rollins as stock investment alternatives seem positive, given the strong fundamentals of the pest control industry and their earning potentials. Nevertheless, initiating immediate action on American Vanguard looks more attractive with its current P/E ratio of 19.52. Rollins, in comparison, is trading at about 32 times its earnings while investors pay more than 21 times on Monsanto’s earnings currently.
Last year, American Vanguard’s stock price more than doubled, and a 20% increase in stockholders’ equity was posted, gains that the company appears en route to achieve anew this year. On a final note, the company has a 19-year streak of dividend payment, the latest of which was the $0.07 semi-annual cash dividend it paid this April, which was 40% above the payout for the 2012 first half.
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