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.
Nevertheless, even using the lower consensus estimate means Monsanto's P/E has moved up to just 19 from 18.3. That's pricey compared with other chemical companies, but still reasonable compared with the P/E of 40 on the average biotech stock.
Furthermore, the company finally is having success at collecting royalty fees from grain handlers in Brazil, where growers had been purchasing Roundup Ready soybean seeds on the black market. This is an encouraging first step in a market that has very large potential for Monsanto and could add meaningfully to earnings in coming years. The company reportedly also is considering collecting royalty fees in Argentina as well, where roughly 90% of the soybean crop is Roundup Ready, compared with 30% in Brazil.