Monsanto Company (MON: 51.07 -0.14 -0.27%) has paid $2.5 million as fine to the U.S. Environmental Protection Agency (EPA) for violating the Federal Insecticide, Fungicide and Rodenticide Act.Monsanto, in selling and distributing its Bollgard and Bollgard II cotton seeds in 10 Texas counties between 2002 and 2007, violated the law as the above-mentioned pesticides were banned in those counties. The ban was imposed in order to raise the pest resistance level in those counties.
Monsanto is subject to regulatory risks based on its huge dependence on government environmental laws and regulations due to the nature of its business. These regulations can dictate the amount and type of emissions, disposal of waste products etc. The above restrictions can increase operating cost to a certain extent, which could have a negative impact on the bottom line of the company.
Moreover, Monsanto deals with products that face strong competition. The global market for products from the seeds and genomics segment has been experiencing growing competition. Both the row crops and vegetable seed businesses compete with numerous multinational agrichemical and seed marketers globally, and with hundreds of smaller companies regionally.
Monsanto also faces foreign currency risks because the majority of its revenue comes from countries outside the United States. During fiscal 2009, approximately 45% of Monsanto’s revenue originated from outside the United States.
Monsanto has delivered weak results for the last three consecutive quarters. In the most recent quarter i.e. in the third quarter of fiscal 2010, EPS was $0.81 compared to $1.25 in the year-ago quarter and revenues were $2,962 million, 6.3% down from $3,161 million during the same period in the previous year.
The 2010 guidance is lower than the 2009 level. Management expects earnings in the range of $2.40-$2.60 per share, 43% lower than fiscal 2009. Thus, we reiterate our Underperform recommendation on the stock.| Analysts' Targets | |
| UBS Securities | $70 |
| Add | |
| Friday, May 28, 2010 | |
| Morgan Joseph & Co. Inc. | $60 |
| Buy | |
| Monday, May 17, 2010 | |
| Kaufman Brothers | $71 |
| Buy | |
| Thursday, April 08, 2010 | |
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