While the current earnings season is shaping up to be a fairly good one for many sectors, few have as much to celebrate as the agricultural industry. Consider Monsanto ( MON): Thanks to a robust 27% increase in sales of its Roundup herbicide, two weeks ago Monsanto reported earnings per share of 88 cents for its fiscal third quarter, topping not only its initial guidance of 70 cents, but also surpassing even its most recent preannounced estimate of 85 cents. It's no surprise then that Monsanto's shares now are heading back toward their 52-week high of $38. The stock already is up 7% since I first highlighted it just one month ago, a far better performance than the 2% decline in the S&P 500 in that same time frame. But Monsanto's shares could keep moving higher.
Biotech Growth Blossoms
Admittedly, counting on a good farm economy, which to some extent means betting on the weather, is rarely a good investment strategy. Fortunately, Monsanto's growth isn't entirely dependent on that. It is one of the world's leading developers and marketers of seeds and biotechnology traits related to control of weeds and insects and, more recently, weather resistance and nutrition, all of which help improve growers' productivity and profits. As such, Monsanto's business should thrive both in good farm economies and bad. The fact is, Monsanto is becoming more of a biotech company -- and a very profitable one -- than an agricultural chemical company, which could only help the stock's valuation going forward. In that regard, the stock's current price-to-earnings ratio, even after this recent move, still looks reasonable. Street estimates already have moved higher in just the last month. For 2005, for example, the consensus now is looking for $1.92 per share, up from $1.86 previously. That might even prove to be on the low side; some analysts, like Merrill Lynch's Don Carson, already are using an estimate of $2.10 for next year.