ST. LOUIS, MO. (TheStreet) -- Monsanto (MON) stock reached a new 52-week low during trading on Tuesday, a day ahead of its fiscal third-quarter earnings. The dubious share price distinction earned by Monsanto was a fitting earnings lead-in for the controversial bioengineered-crop-seed and weed killer maker.
Regardless of a larger market selloff on Tuesday -- after the Consumer Confidence Index came in well below expectations, and China revised a key economic index lower -- 2010 has been one low followed by another for Monsanto.
Headed into Monsanto earnings, is the maker of Roundup ready to turn the tide and give investors a reason to buy its shares? It's clear from the Monsanto stock performance in 2010 -- down 42% -- that investors who were long Monsanto shares early in the year have already exited the stock in droves.
There's a host of reasons why Monsanto has fallen out of favor so quickly and widely with investors. Price cuts in the next generation bioengineered-crops that haven't yielded in the farm fields at a level that Monsanto promised; big earnings misses and bold growth projections taken down by Monsanto management; and a federal antitrust suit alleging Monsanto's monopoly power have all been part of the negative Monsanto headlines roundup that the company hasn't been able to readily defend itself against.
Monsanto shares were trading at over $86 at the outset of 2010, and reached a 52-week low below $47 on Tuesday.
Monsanto shares have fallen so precipitously in 2010 -- it's near the top of the list among S&P 500 losers -- that some market movers have begun to look beyond the persistent weeds that still surround the agricultural company. Early in June, Goldman Sachs analyst Robert Koort wrote in a research note to investors that "enough was enough" and added Monsanto to Goldman's conviction buy list.
One point Goldman made in its recent bullish take on Monsanto is that the negative news for Monsanto has pretty much been plowed at this point. A quick review of the direction in which Monsanto earnings estimates for the third quarter have moved show the healthy crop of pessimism about the fiscal third-quarter outlook. Three months ago, the Street consensus was for fiscal third-quarter earnings of $1.56. The current Street consensus is Monsanto third-quarter earnings of 80 cents, with the low estimate at 75 cents and the high estimate at 85 cents. That's versus $1.17 in same quarter earnings from Monsanto a year ago.
The Street consensus expects the Monsanto top line to be consistent with the third quarter 2009, with revenue just under $3.2 billion.
Monsanto management made some major concessions during its fiscal second quarter earnings conference call, but the stock has continued to trend lower, culminating in the new 52-week low ahead of the third quarter earnings report on Wednesday morning.
Still, not all analysts believe that the harvest of bad news from Monsanto is finished. "Now that they've totally deflated investor expectations, the bar is really low, but we thought the negative news might end after the first negative press release from Monsanto this year, so we've been surprised time and time again," said one analyst who did not want to be quoted on Monsanto ahead of the earnings.
Mike Judd, an analyst with Greenwich Consultants, said the huge falloff in Monsanto's once-proud Roundup Ready empire is by now an old story. As on the last earnings conference call, the focus has to be on Monsanto's new portfolio of biotech seeds and traits. Judd said that even though analyst estimates have changed dramatically, the critical negative indicator for him is that the yield data on Monsanto's new portfolio is not at the same level as it had been historically.
The major improvements have already occurred, and while Monsanto isn't a terrible story, expectations are still too high for the Greenwich Consultants analyst to look favorably upon its shares. "I'm not as excited about the current portfolio," Judd said. The lack of yield improvement was at the heart of the pricing concessions Monsanto had to make this year as farmers revolted over paying premiums for genetically modified corn and soybean seeds, called RoundUpReady 2 and SmartStax.
Another agricultural analyst said the key question for the Monsanto earnings call is how the management can show any sort of technological competitive advantage in a rapidly commoditized market. "How do you protect your intellectual property and grow the business," the analyst asked, adding "Monsanto didn't see their Roundup business going into the toilet, so there is a huge onus on them to be straightforward and provide a clear message."
For those, like the Greenwich Consultants technical analyst, who see a double dip recession on deck with the dollar strengthening and commodities prices going down, an investor doesn't even need to stack up all the Monsanto-specific negatives to steer clear of the stock.
"If you're a farmer and commodity prices go down and you have to choose between a Porsche or can get by with a Buick, I think there will be more Buicks out there," Judd said, referring to the long-standing Monsanto management line that it can command a premium for its superior product portfolios.
Indeed, the Buicks may be out in the fields amid the tractors in increasing numbers. The question headed into the Wednesday Monsanto earnings is whether the agricultural giant's stock will increasingly resemble a market generic or can Monsanto shares make a convincing bid to reclaim their luxury status.
-- Written by Eric Rosenbaum from New York.
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