MON Preview: Estimates Remain Solid

Monsanto shareholders are licking their wounds, with the stock off 50% over the last six months, yet the company may be poised to prove that there is some life yet in the agricultural sector. The company reports tomorrow and the Street is looking for earnings of 59 cents per share on $2.4 billion in sales for the quarter.

Notably, while the stock has been shellacked, someone forgot to mention this to the analysts, who have barely taken a dime out of the 2008 or 2009 estimates since last summer. The $4.56 and $5.28 EPS estimates for this year and next, respectively, are rock solid, and the valuation at 14 times is now pretty attractive (unlike this summer, when admittedly it was challenging).

Analysts expect to see strength in the Ag Productivity group -- in other words, herbicides -- which should post 17% growth. Success here may be discounted by investors, due to ongoing concerns regarding glyphosate, the generic name for Roundup. Notably, glyphosate is under pricing pressure, especially in China and retail markets. Pre-buys in Latin America could goose results, but that will just be moving demand from next quarter to now. Margins may hold up better than pricing, due to simultaneous declines in phosphate prices, a key input into the product.

Seed and Genomics will still struggle with operating profitability, with a marginal loss expected despite solid gross margins. Favorable mix shifts to ASI and solid pricing may add a couple pennies to EPS.

Investors will be concerned about intended corn acreage plantings for this summer, with corn prices off significantly from last spring. Management is forecasting strong gains in corn prices for 2009, but the company may be off the mark at this point and may relent on the call. The competitive environment may boil down to financing. Pioneer will be aggressive with customer credit this spring, which is an important factor in farm planning.

The call starts at 9:30 a.m. EST.

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Know What You Own: Monsanto operates in the agricultural chemicals industry, and some of the other stocks in its field include Potash (POT - commentary - Cramer's Take), Syngenta (SYT - commentary - Cramer's Take), Mosaic (MOS - commentary - Cramer's Take), Agrium (AGU - commentary - Cramer's Take), CF Industries (CF - commentary - Cramer's Take) and Compass Minerals (CMP - commentary - Cramer's Take). For more on the value of knowing what you own, visit TheStreet.com's Investing A-to-Z section.

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At the time of publication, Dvorchak was long Monsanto, although positions can change at any time.

Gary Dvorchak is a managing partner of Aviance Capital Management, a Sarasota, Fla.-based institutional asset manager that manages $200 million in growth and value equities and fixed income. Dvorchak holds a master's degree in business administration from Northwestern University and a bachelor's degree in computer science from the University of Iowa.