Q. Can my shares of Monsanto Co. continue to rise at their current pace or should I be worried?
R.M., via the Internet
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A. The world’s leading producer of a wide range of seeds has found farmers more willing to spend money on premium corn seed this year.
That’s because farmers are benefiting from the highest corn prices in more than a decade because of global demand for food and for fuel such as ethanol. U.S. corn production is expected to rise 26 percent this year, according to the U.S. Agriculture Department.
“Triple-stack” corn from seeds with three genetically added traits is showing especially strong gains. Monsanto plans to increase its production capacity for such seeds by 50 percent.
A primary goal of genetic modification is to reduce risks such as weed and insect infestation. But attitudes of consumers throughout the world toward genetically modified food will be a significant factor in determining the company’s long-term growth. Farmers base their planting on their perception of public demand for their crops.
The firm’s continued ability to bring new products to market ahead of competitors also will be crucial.
Monsanto shares (MON) are up 68 percent this year, following gains of 35 percent last year, 40 percent in 2005 and 93 percent in 2004. The company, which has authorized a 40 percent increase in its dividend, has a strong balance sheet and cash flow.
Sales of Monsanto’s Roundup herbicides, which help control weeds, have risen. The company has been expanding international sales of all its products and is expected to make especially strong gains in South America and Europe.
Meanwhile, it has been acquiring smaller seed companies and forging partnerships with international chemical companies. It also recently entered a partnership with the Israeli biotech firm Evogene Ltd.
The consensus analyst rating on shares of Monsanto is a “buy,” according to Thomson Financial. That consists of four “strong buys,” four “buys,” and five “holds.”
In Monsanto’s recently completed fiscal year, earnings excluding discontinued operations and acquisition-related costs increased 44 percent. Although it posted a loss of $210 million in its fourth quarter, it historically posts a loss in the fourth quarter because most planting has already been completed.
Earnings are expected to increase 48 percent for the fiscal year ending in August and 23 percent the following fiscal year. The five-year annualized growth rate is projected to be 28 percent compared with 11 percent projected for the agricultural chemicals industry.
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Andrew Leckey is a Tribune Media Services columnist. E-mail him at yourmoney @tribune.com.