Monsanto Company (MON): Agricultural bioengineers

When you are a big producer of crop seeds, manufacturing herbicides does not seem to be the most sympathetic business diversification. Still, there is an outfit in St. Louis that makes it work. It simply alters its seeds genetically, so they tolerate its herbicides.

Monsanto Company (NYSE: MON) provides agricultural products to farmers worldwide. The company produces seeds and develops biotechnology traits that assist farmers in controlling insects and weeds. Products include canola, corn, soybean, fruit, cotton, sunflower and sorghum seed. Monsanto also manufactures the world's leading herbicide, Roundup. Further, it provides products that focus on improving dairy cow productivity and it sells genetics lines for improving the productivity and meat quality of swine.

The company pleased investors last week, when it reported fiscal Q1 EPS of 46 cents and revenues of $2.1 billion. Analysts had been expecting 35 cents and $1.87 billion. Robust Latin American demand for Roundup and seed trait products was cited as a big factor in the successful quarter. Management also guided FY08 EPS to $2.50-2.60 ($2.59 consensus) and boosted its FY08 free cash flow estimate from $800-900 million to $0.9-1.0 billion.

The stock popped on the news and has since been consolidating the gain in a bullish "flag" pattern. Equities frequently exit flags moving in the same direction they were traveling on entry. In this case, that would be to the upside.

Brokers recommend the shares with four "strong buys", four "buys" and five "holds". Analysts see a 31% average annual growth rate, through the next five years. The MON Sales Growth rate (36.39%), EPS Growth rate (187.50%) and Operating Margin (18.00%) compare favorably with industry, sector and S&P 500 averages. Institutions hold about 85% of the outstanding shares. The stock is one of those used to calculate the S&P 500 Index. Over the past twelve months, it has traded between $49.10 and $124.35. A stop-loss of $105.75 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold a position in the stock discussed above.