We reiterate our Underperform recommendation on Monsanto Company (MON) based on low visibility on the yield performance of SmartStax seed in the coming years. Based on concerns regarding the performance of SmartStax seed, estimates have gone down by 6 cents and 14 cents for fiscal 2011 and 2012, respectively.
Monsanto continued to post weak results for fiscal 2010 with an EPS of $2.41, almost half its $4.41 in fiscal 2009 due to the decrease in the prices of Roundup herbicides. The increase in cost and expense was the icing on the cake.
Further, a slower market recovery and an intensely competitive environment posts additional challenges for the company. Thus, our Underperform recommendation on the stock indicates that it would perform below the broader market. Our $53.00 target price, 18.9x 2011 EPS, reflects this view.