Valuation: How Does Monsanto Compare to Peers?

With Monsanto’s (MON) fiscal 2Q16 earnings release around the corner, let’s look at the company’s current valuation multiple and how it’s trended over the years. We’ll use the EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) valuation multiple because this metric takes into account the effect of the company’s debt and cash.

Remember that EV-to-EBITDA multiples are neutral to capital structure, however. This fact is important because the fertilizer business is capital-intensive, and high levels of debt are therefore common. This multiple also eliminates the variation that can occur due to the different methods companies use to account for depreciation.

As of June 24, Monsanto was trading at an EV-to-EBITDA multiple of 12.5x, which was above the company’s five-year average multiple of 11.5x. Monsanto traded at a high point of 12.9x in May 2016 upon news of Bayer’s interest in acquiring the company. MON is also trading close to the average peer (XLB) median.

The peers and their respective current valuation multiples are as follow.

• Syngenta (SYT) is trading at 14x, which is at the higher end of its historical range of 8.9x–15.6x over the past five years.
• DuPont (DD) is trading at 11.86x, which is close to the midpoint of 10x over the past five years. DuPont’s valuation multiple hit a recent low point of 8.7x in October 2015 and climbed to a high of 13.4x in December 2015.
• Dow Chemicals (DOW) traded at a high point of 9.8x in October 2014 and reached its low point of 6.9x in February 2016. DOW is currently trading at 8.1x.

Next, we’ll wrap up this series by looking into analysts’ ratings and price targets for the company.