Thursday, November 16, 2006

Calls of Note Part 3

- Merrill Lynch notes that Monsanto's (NYSE:MON) biotech pipeline has a good balance of near- and long-term opportunities that are highlighted by the company's top-ten list. Based on progress made during 2006 field trials, which Monsanto briefly commented on at a recent investor conference in London, the firm estimates that many of these top-ten products will advance to the next phase of commercial development when Monsanto provides its R&D update during the F1Q conference call in early-January. Firm expects pipeline advances to drive an increase in Monsanto's gross margins to 54% by 2010 versus 49% in F2006 and the company's 51-53% target.

They also expect Monsanto to confirm in January that several new biotech products advanced to phase I evaluations in 2006, similar to the five new entries announced last January. ML's DCF-derived price objective for Monsanto has more than doubled from $22.50 (proforma stock split) to $55 in the last two years, driven by the expansion in seeds and biotech traits. They could see an upward revision to their DCF analysis, post the R&D update in January, similar to the $5/sh increase after the last revision, owing to increased breadth and advancement of the biotech pipeline.

Notablecalls: Tight leash on this one. While I think it has potential for a 1 pt move, I aknowledge it may also start quickly rolling in the opposite direction as it has done many times before.

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