Monsanto (MON) is one of the largest companies under the umbrella of the agricultural chemicals industry (XLB) with a market capitalization of $51.8 billion as of September 13, 2017. The company has a presence in more than 150 countries and sells agricultural seeds, vegetable seeds, and crop protection products. The company has been in existence for more than a century.
To know more about Monsanto, read An In-Depth Review of Monsanto Company’s 2016.
Over the past ten-year period, Monsanto has risen 83.3% and outperformed the S&P 500 Index’s rise of 69.2% for the same period. The above chart shows how MON stock moved along with adjusted earnings over the recent ten-year period.
However, if we consider the recent five-year period, the stock has underperformed the S&P 500 Index by about 27.5% with a five-year rise of 43.6%. Syngenta (SYT), an ADR (American depositary receipt), has delivered a similar return of 43.7% over the recent five-year period.
Much of the weakness in MON’s performance over the last five years is a result of falling crop commodity prices. Bumper crop production with a growth rate faster than the consumption rate pushed down the prices of crop commodities.
With the operating margins and an increasing pressure to deliver better returns, the industry moved toward consolidation. Monsanto recently announced its merger with Bayer. The deal is expected to close by the end of 2017.
YTD (year-to-date), MON stock has risen 13.6%, which has outperformed the 11.6% rise in the S&P 500 Index. The rise in Monsanto stock was driven by the merger announcement, which has an offer price of $128 per share.
Monsanto had a stable dividend yield of 1.8%–2.0% over the last ten years.
The way forward
The merger with Bayer has several challenges. Two companies as big as Monsanto and Bayer face regulatory hurdles in several jurisdictions in which these companies operate. As of September 13, 2017, MON stock closed at $117.80. This gap may indicate investors’ skepticism that the deal can pass regulatory authorities.