Should Investors Plant This Company in Their Portfolios?

Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a great way to gain a detailed and thorough perspective on a company and its future. As 2012 draws to a close, I would like to focus on innovative agricultural giant: Monsanto (NYSE: MON).

 

Strengths:

  • Solid Top Line Growth: In 2007, Monsanto reported revenue of $8.56 billion; in 2012, the company announced revenue of $13.52 billion, representing year over year annual growth of 9.57%, a trend that is highly anticipated to continue into the future, with projections placing 2015 revenue at $16.32 billion. This growth is a result of an increase in sales due to innovative offerings

 

  • Dividend: Monsanto currently pays out quarterly dividends of $0.375, which annualized puts the dividend as yielding 1.62%
  • Institutional Vote of Confidence: 86% of shares outstanding are held by institutional investors, displaying the confidence some of the largest investors in the world have in the company and its future
  • Double Digit Margin: At the moment Monsanto carries a net profit margin of 15.10%, representing a strong and profitable company; these double-digit margins are a result of Monsanto's pricing power
  • Leg Over Competition: Monsanto offers biotechnologically altered seeds to farmers, ones that improve productivity, reduce the costs of farming, and produce better food for consumers and better feed for animals, and these innovative technologies give Monsanto a distinct leg over the competition
  • Cash & Equivalents: Monsanto currently holds about $3.28 billion of cash and cash equivalents on their balance sheets, a major advantage for the business

 

Weaknesses:

  • Debt: At the moment the company possesses about $2.04 billion of debt on their balance sheets, a major downside to the business; much of this debt is a result of expansion plans

 

  • Valuation: Monsanto currently carries a price to earnings ratio of 24.69, a price to book ratio of 4.25, and a price to sales ratio of 3.73, all of which point to a slightly overvalued company

 

  • Operating Expenses: When a company expands, the costs related to operating that business will grow; however, over the past 10 years operating expenses have outgrown revenues, an ominous sign

 

  • Dependence on United States: In 2012, 54.55% of total revenue was derived from the United States, and this dependence on the sluggish American economy could prove detrimental to Monsanto’s overall business

Opportunities:

  • Acquisitions: In June 2012, Monsanto acquired Precision Planting Incorporated, and further acquisitions could introduce new technologies into the company and fuel future growth
  • Dividend Growth: Since implementing their dividend program in 2011, Monsanto has consistently raised their dividend payouts, and this trend is widely anticipated to continue into the future

   

  • Innovations: Monsanto has a long history of innovating its products to accommodate the changing needs of farmers, and further innovations into the future could fuel growth
  • Growth in Agricultural Market: The global population is growing, and with this expanding population comes growth in the number of people that need to be fed, and in turn growth in the agricultural market. Additionally, due to the declining abundance of fertile farm land due to pollution and other factors, Monsanto’s seeds allows farmers to get the most out of their land

 

  • Drought: The historic drought of this year devastated farmers across the United States. However, farmers with Monsanto’s genetically enhanced drought resistant seeds had it easier easier, and caused many farmers without enhanced seeds to consider purchasing them

Threats:

  • Competition: The agriculture industry is incredibly competitive, with several other major corporations battling with Monsanto, and this competition can lead to margin compression
  • Governmental Regulation on Farming Industry: If any regulation was implicated on the farming industry that resulted in less money for farmers, they would be less inclined to purchase Monsanto’s genetically enhanced seeds, as they are more expensive than the normal breeds of seeds

Competition:

Major publicly traded competitors of Monsanto include E.I. du Pont de Nemours & Company (NYSE: DD), Syngenta AG (NYSE: SYT), FMC Corporation (NYSE: FMC), and Dow Chemical (NYSE: DOW). All of these companies offer products that are similar, if not identical, to those of Monsanto. DuPont is valued $41.42 billion, pays out a dividend yielding 3.87%, and carries a 14.90 price to earnings ratio. Syngenta is valued at $36.80 billion, pays out a dividend yielding $2.14, and carries a price to earnings ratio of 22.19. FMC is valued at $9.63 billion, pays out no dividend, and carries a price to earnings ratio of 23.92. Finally, Dow is valued at $37.97 billion, pays out a dividend yielding 4.04%, and carries a price to earnings ratio of 24.42.

The Foolish Bottom Line:

Monsanto is a financially solid company, possesses steady revenue growth, a growing dividend, and a bright future filled with opportunities. The world population is rapidly expanding, and Monsanto will provide the products required to feed this growing population. All in all, other than the company’s debt load and pricey valuation, Monsanto is flawless, and will do nothing but prosper in the future. This is undeniably a company investors want to plant in their portfolios.    


makinmoney2424 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Monsanto Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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