Monday, August 11, 2008

Monsanto (NYSE:MON): Stock looks cheap here - Morgan Stanley

Morgan Stanley is out with a positive call on Monsanto (NYSE:MON) reiterating their Overweight rating and $170 tgt on the name calling the stock cheap here.

- According to the firm 100+ investors will travel to Monmouth, IL with Monsanto management this week to tour fields containing Monsanto’s biotechnology pipeline. What makes this year’s trip particularly exciting is that MSCO's math indicates that at today’s share price investors will be handed the pipeline for free (i.e., they believe that the existing business is worth $110 per share and that the pipeline is worth $60). To be clear, their models assume $3 corn and $8 soybeans; using current $5 corn and $12 soybean prices would increase the pipeline’s value by $8 and $5 per share, respectively. They expect two days in the fields with management to flood the current bumper crop of investor concerns (i.e., “plummeting” corn prices, stronger US$, fears of a US economic slowdown leaking into emerging markets, et al) as they relate to Monsanto’s both current and future

Stock even looks attractive on P/E. While they still do not believe that P/E is the correct way to value Monsanto (as it ignores the earnings power that is being reinvested in R&D - i.e., ~$1.50 of EPS in F2009), following the 23% pull back in Monsanto’s share price since its all time high on June 16, the firm no longer believes that bears have much of a P/E leg to stand on.

Notablecalls: I think this call will generate some buy interest in MON today ahead of the investor meeting. The stock has been crushed over the past months and the meeting could act as a significant trigger here.

MON could hit $110-$112 easy today if it gets going.

PS: Note that Citigroup is also out pos on MON reiterating their Buy rating and $145 tgt after after recently meeting with senior BASF Ag leaders at an Investor event (MON has a partnership in place with BASF).

One to watch today.

No comments: