Monday, June 25, 2007

Monsanto Earnings

Monsanto (MON), the seed and fertilizer giant reports Thursday before the bell and analysts are looking for $1 a share vs. the $.61 cents they earned last year for a cool 64% growth.

With the explosion in ethanol production (and now corn plantings) Monsanto is seeing unprecedented demand for it's seeds and fertilizers and shares have vaulted form $39 to $68 in the past 52 weeks. Competitors such as Potash (POT), Agrium (AGU) and Terra Industries (TRA) have participated in the bonanza with shares prices all up well over 100% in the past year.

Monsanto will set the bar for the group this week and a miss will cause shares of the smaller companies, several of whom sport PR ratios in the 70's and 80's to implode. Conversely, a beat and upward revision in full year guidance will cause the sector's party to carry on. In short, when you have valuations this high, volatility will be the name of them game.

I would be shocked to see anything but a hit or beat for Monsanto. The Ag business, as the Agrium CEO recently said "is on fire" and does not look to be slowing down anytime soon. Monsanto is experiencing huge demand for it's new disease resistant corn seeds that farmers will want to satisfy ethanol producers.

If you think the party may be over, I would avoid betting against this group now, to quote James Taylor "don't tug on superman's cape, don't pee into the wind, you don't pull the mask off the old long ranger..." and do not bet against the Ag sector now.

If you think there is more room to run, it will be a wild ride when valuations are this high. If you buy shares, buckle your seatbelt and hold on.


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