S&W Seed Following A Better Plan, But Execution Remains A Key Unknown

Small-cap seed company S&W Seed Company (SANW) has certainly weathered some ups and downs in recent years, not all of which were or are in management's control. While the company has taken cogent steps to build out and improve its alfalfa business, policies in key markets like Saudi Arabia have undermined the company's progress. At the same time, though, the company has suffered from a sometimes-incoherent and scattered set of corporate priorities.

New management has been clear about what it wants to do, and most of the new plan sounds good to me. It's going to take time for these plans to bear fruit, though, and the company doesn't have much of a safety net left to withstand significant disappointments or delays. While there's certainly upside from here if management can get the business stabilized and growing again, the risks are high, and the company's ability to execute under new management is still unproven.

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S&W Seed Following A Better Plan, But Execution Remains A Key Unknown

Monsanto Ending On A Position Of Strength

For a company that has been around for a while and leads its industry, there’s an odd cyclical quality to Monsanto (MON) where sell-side analysts seem to get ahead/behind of the company’s growth curve, leading to multi-quarter periods of out/under-performance relative to expectations. Monsanto looks to be late in the game with another outperformance cycle, but that likely matters much less now that the company should be approaching the end of the line as a publicly-traded company.

It remains to be seen if Bayer (OTCPK:BAYRY) will get all of the final approvals it needs to acquire Monsanto. No insurmountable obstacles have appeared yet, but there is still a risk that regulators could dig in their heels and/or demand concessions that Bayer finds unacceptance. Although there’s still about 5% upside between today’s price and the deal price, that’s not really out of line relative to the remaining risk (and time). Consequently, I’m more inclined to look for the exit with my Monsanto position and find new investment ideas.

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Monsanto Ending On A Position Of Strength

Iteris Expecting Big Things From Big Data

Investors who've been around a while know to be skeptical when established companies attempt to pivot their business toward hot new trends. It has happened many times in biotech, it happened with the rise of e-commerce and cloud/SaaS, and it's happening again with ag tech as concepts like data analytics and Internet of Things are applied to this huge market.

That doesn't mean that investors should automatically dismiss Iteris (NYSEMKT:ITI). After all, well-run companies are supposed to figure out how to apply their existing know-how and expertise into emerging and adjacent sectors to grow their business. But it does at least argue for investors to approach this name somewhat cautiously for now.

If Iteris can build real share in its addressable segment of ag analytics and achieve the sort of margins and cash flow that other companies have managed with a SaaS model, a double-digit fair value is not unreasonable. On the other hand, if the company cannot make a dent in the ag market over the long term (and/or the market fails to emerge as expected) and the traffic business performs more or less as it has in the past, a return to the low single cannot be ruled out.

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Iteris Expecting Big Things From Big Data

Will Precision Ag Take American Vanguard To A New Level?

For what it is, American Vanguard (NYSE:AVD) is a good company. This small agricultural chemicals company does not have the R&D resources to compete with companies like Syngenta (NYSE:SYT), Bayer (OTCPK:BAYRY), or BASF (OTCQX:BASFY) in novel crop protection ingredients, nor the scale to compete with companies like ChemChina in large-scale generic crop protection, but it does have a solid record of acquiring and marketing niche products for an array of row crops, fruits, vegetables, and cotton.

The challenge I have with American Vanguard is when the market runs ahead of itself by overestimating what the company can be, as has happened in the past when investors thought the corn boom established a "new normal" for sales or when Zika would lead to a major sales opportunity for its mosquitocide. Now I have similar concerns about SIMPAS, the company's entry into precision agriculture. While the SIMPAS system seems legit, I think the sales effort will be challenging, and I think the company will always be challenged by its lack of proprietary R&D capabilities. As I think $15 to $17 is a reasonable estimate of fair value, I don't see all that much upside today.

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Will Precision Ag Take American Vanguard To A New Level?

Monsanto Holding Serve Ahead Of Regulatory Debates

There's no question that the biggest value-driving events for Monsanto (NYSE:MON) are yet to come, as this leading agriculture technology company will have to go through what is sure to be a rigorous regulatory oversight process to get to the finish line with its would-be suitor Bayer (OTCPK:BAYRY) and deliver the $128/share in cash that a successful deal promises.

In the meantime, Monsanto is Monsanto. The ag market is still in recovery mode, and 2017 is not likely to be a banner year for acreage, but Monsanto is doing well with new launches in South America and continues to upgrade its product portfolio in North America. What's more, Monsanto has long been an R&D-driven story and management hasn't been shy about continuing to reinvest and expand that research pipeline. While the shares do trade above my estimate of standalone fair value, it seems as though today's price factors in only about a 20% chance of the deal going through, and that strikes me as a reasonable risk/reward.

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Monsanto Holding Serve Ahead Of Regulatory Debates

S&W Continues To Plant Seeds For Future Growth

The ag sector has shown a little life since the last time I wrote on S&W Seed (NASDAQ:SANW), but this small grower of alfalfa seeds has done better than most with better than 15% improvement in the share price since the time of that late March piece. While the company's growth in recent quarters has been hampered by low inventories (caused by disappointing yields due to weather), the company has shown good discipline with its seed pricing and sourcing, as well as its corporate costs.

The rebound in the share price has taken some of the easy money off the table, but the company has made multiple moves that should improve the stability and growth potential of the business over time. Diversifying into new crops seems like a risk worth taking, but the key for the company, in my view, remains its ability to improve seed prices and push adoption of higher-value seeds by emphasizing the yield and value advantages of its hybrids.

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S&W Continues To Plant Seeds For Future Growth

Monsanto Facing Some Hard Decisions

When I last wrote on Monsanto (NYSE:MON), I thought the company was still in for some rough quarters as corn prices continued to weaken, but that M&A chatter would continue to swirl. And that's exactly what has happened.

Monsanto's financials are wilting in the face of weak corn prices and more aggressive discounting from rivals, but Bayer (OTCPK:BAYRY) has come forth as a bidder for the company. Bayer hasn't come forward with an especially strong bid, though, and it remains to be seen whether Monsanto can coax a more appropriate bid from Bayer, get BASF (OTCQX:BASFY) involved, perhaps have another go at Syngenta (NYSE:SYT), or go it alone and deliver the benefits of its strategic partnership strategy.

On its own merits, I think Monsanto is at its fair value, as I do believe the soy business will start delivering in a big way and that the company has some high-potential pipeline projects reading to deliver in the coming years. While a bid from Bayer of $130 or higher would obviously represent upside, there is the risk that Bayer walks away or that the company pursues an alternative (like a venture with BASF) that may be worth more in the long term, but will require a great deal more patience.

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Monsanto Facing Some Hard Decisions

Seeking Alpha: Waiting For The Grass To Grow At S & W Seed Company

The wait goes on for S&W Seed Company (NASDAQ:SANW) (or "S&W") to prove its merits as an under-followed player in the ag space. The shares are down another 17% from my last update, about flat over the last year, and down 40% over the past two years. Weak as that may be, S&W has actually outperformed Monsanto (NYSE:MON) since June and over the past year, as there's been a sharper reaction to Monsanto's negative revisions.

Not a lot has changed from a fundamental perspective since last June, though a disappointing harvest in 2015 is going to have near-term repercussions on margins. The key debate around S&W, at least in my thinking, remains whether the company can successfully shift farmers from public/generic seed varieties and share in a larger proportion of the value created by its yield-enhanced and other proprietary alfalfa seed varieties. My low double-digit annualized revenue growth estimate is hardly conservative, but S&W could achieve it with a combination of low single-digit acreage growth and an improvement in value capture from less than 10% to less than 20% - still well below the 25%-plus that Monsanto and DuPont (NYSE:DD) can reliably get from their corn and soybean varieties.

If S&W can do it, and achieve a long-term gross margin above 30% and a long-term operating margin in the mid-teens, a fair value of over $6 still remains in play after a recent dilutive financing.

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Waiting For The Grass To Grow At S & W Seed Company

Seeking Alpha: Monsanto Making Do, But It's M&A That Everyone Seems To Want

Given the recent announcement of the intention of DuPont (NYSE:DD) and Dow (NYSE:DOW) to combine their operations and Syngenta's (NYSE:SYT) apparent increased willingness to at least consider M&A offers, the question of consolidation in the ag business seems to have rendered Monsanto's (NYSE:MON) near-term performance largely moot. Given the weakness in the ag sector, and ongoing softness in corn prices, that might not be such a bad thing.

I continue to believe that Monsanto is a solid long-term holding in the ag space. The stock is modestly undervalued and carries less operating risk than many cheaper-looking ag stocks. I also continue to believe that Monsanto will find a seat in this game of ag musical chairs, but there is definitely a risk that Monsanto either has to settle for something less than its first choice (or second...) or pay more than it would like to.

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Monsanto Making Do, But It's M&A That Everyone Seems To Want

Seeking Alpha: In A Bad Ag Market, Can Monsanto Do Enough That Matters?

Monsanto (NYSE:MON) wasn't the first to feel the pinch from the negative ag cycle, and it certainly hasn't suffered the most, but weak grain prices have nevertheless done their damage. Monsanto's shares are down about 10% from my last update, and about 20% over the last year, as investor expectations and analyst targets have dropped significantly in the face of weak crop pricing and pinched farmer budgets.

There's always a big "but" that goes with forecasting the results for any ag-sensitive company and that is the unpredictability of the underlying market; a really bad (or good) crop could shift prices dramatically and change MON's operating environment quickly. That said, a lot of those fluctuations even out over time, and I believe the company's deep, high-quality R&D operation is a strong source of future value.

My expectations for Monsanto were lower than the Street's prior to this most recent reckoning, so my revisions are correspondingly more mild. I still expect MON to be a 10%-plus long-term grower, supporting a $105 fair value today and maybe some upside if a deal for Syngenta (NYSE:SYT) or another strategic target materializes.

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In A Bad Ag Market, Can Monsanto Do Enough That Matters?

Seeking Alpha: Monsanto: Changing With The Times, Or Losing Focus?

Agribusiness giant Monsanto (NYSE:MON) is no stranger to controversy, and I can't imagine that the company's aggressive attempts to bring Syngenta (NYSE:SYT) to the bargaining table are going to ease concerns. In addition to worries about antitrust, divestitures, and synergies, there is at least an argument to be explored that Monsanto's shift away from a reliance on seeds and traits is part of a wider issue of the company losing focus on what made it such a winner in the ag space.

I don't really share the "losing focus" concern, but I do think Monsanto's interest in Syngenta, its Climate Corp business, and its ventures into biologics and RNAi may reflect a growing need for the major players in agriculture to touch multiple parts of the value chain to maximize their value-add.

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Monsanto: Changing With The Times, Or Losing Focus?

Seeking Alpha: FMC In The Right Businesses, But The Valuation Could Be Better

FMC (NYSE:FMC) has been making a lot of smart moves to better position the company for above-average long-term growth in multiple attractive specialty chemical markets. The Cheminova deal wasn't cheap, but added good diversification and offers expense-driven synergies, while the sale of the alkali business came at a better than expected price. Longer term, it's hard not to like crop protection, health/nutrition, and lithium.

I wasn't thrilled with FMC's valuation back in April of 2014, and the shares have fallen almost 30% since then, underperforming BASF (OTCQX:BASFY), Bayer (OTCPK:BAYRY), Dow (NYSE:DOW), and Monsanto (NYSE:MON) over that time. I'm still not enamored with the valuation today, but I do believe there is an opportunity for the company to outperform on both sales growth and margin leverage.

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FMC In The Right Businesses, But The Valuation Could Be Better

Seeking Alpha: S & W Seed Has A Huge Opportunity, But The Ability To Execute Is The Key Risk Factor

I suppose it would be easy to blame S & W Seed's (NASDAQ:SANW) ongoing share price weakness on the overall malaise in the ag sector. The shares are down another 15% or so from when I last wrote about the company, but at their worst they were down closer to 50%. That's not just "well, it's a tough market"; S & W has made more than a few mistakes, leaving the Street to wonder if management can really execute on what seems like a robust opportunity in the alfalfa market.

The acquisition of DuPont's (NYSE:DD) alfalfa business should mark a major point of transition for the business, as it brings immediate credibility and scale to the company in the dormant alfalfa variety market (80% or so of the U.S. alfalfa market and 50% of the world market). What's more, the company's commitment to improved varieties of alfalfa seed (GM and others) should lead to more pricing power. But it all comes back again to the question of execution.

I believe the market opportunity can support high teens annualized revenue growth and operating margins in the mid to high teens over the long term, but that's a lot of benefit of the doubt for a company that thus far hasn't earned it. That's how it is with emerging companies, though - if you want to get in early and get the really big long-term gains, you have to accept an elevated risk; by the time the question of management's ability to execute (and/or whether the alfalfa market can be what I believe it can be) is answered, the opportunity to get in at a low price will be gone.

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S & W Seed Has A Huge Opportunity, But The Ability To Execute Is The Key Risk Factor

Seeking Alpha: American Vanguard Paying For The Recent Glory Days

It has been about 10 months since I last wrote about American Vanguard (NYSE:AVD), but things haven't really gotten any easier in the company's core crop protection market. Lower corn acreage, high channel inventories, and benign insect pressure have severely sapped the company's insecticide business and the company is having to deal with suboptimal operating leverage and the cash absorption of excess working capital as it works through this tough stretch.

I believe that if you adjust for the "corn bubble", American Vanguard has continued to operate as a respectable niche crop protection company with mid-single digit revenue growth and the potential to generate double-digit FCF margins. "Potential" is a tricky word, though, and often the difference between value traps and successful investments. Monsanto's (NYSE:MON) aggressive bid for Syngenta (NYSE:SYT) has brought some excitement back to crop protection, but actual results show a tough environment and M&A is unlikely to benefit American Vanguard unless a company not currently active in the U.S. wants to facilitate a market entry. I don't think American Vanguard is particularly expensive here, but the year ahead is still going to be a challenging one for AVD management and investors.

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American Vanguard Paying For The Recent Glory Days

Seeking Alpha: BASF Continues To Execute A Proven Plan

BASF (OTCQX:BASFY) remains what it has long been - a very large, very diversified, and very well-run chemical conglomerate. A year ago I thought the shares didn't look all that promising on a risk/return basis and the ADRs have since underperformed (down about 21%) as have the local shares (BAS.XE) (down about 4%). DuPont (NYSE:DD), Dow (NYSE:DOW), Bayer (OTCPK:BAYRY), and Clariant (OTCPK:CLZNY) all would have given you a better capital returns performance, though all but DuPont have performed pretty well on a year-to-date basis.

For all of the fine attributes I see in BASF, I still can't get that excited about the shares today as a new money investment. Monsanto's (NYSE:MON) aggressive pursuit of Syngenta (NYSE:SYT) could very much work in BASF's favor, but against that upside are risks and concerns tied to growing global capacity in may of BASF's product categories and efforts by rivals in Asia to move further along the value curve. There are worse things than owning fairly-valued shares of a very good company, which I believe BASF is, but I'm not so excited about the valuation that I want to rush out and buy the shares.

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BASF Continues To Execute A Proven Plan

Seeking Alpha: Monsanto Doesn't Need Syngenta

Rumors have once again heated up around the idea that Monsanto (NYSE:MON) is trying to acquire its rival Syngenta (NYSE:SYT). To a certain extent, this is nothing new. Syngenta has long been thought to be a future M&A candidate, with past rumors tying them to Monsanto, DuPont (NYSE:DD), and Dow (NYSE:DOW), but the company's less-than-impressive run of performance (including a poor first quarter in 2015) has apparently reignited those speculations.

As a Monsanto shareholder, I'm hoping the company does not execute this deal. While I like the idea of Monsanto gaining more exposure to vegetables and crops outside of the corn/soy complex, as well as access to Syngenta's technology and diversification into the ag chemical business, I think Monsanto would be hard-pressed to earn a good return on the price paid, particularly after factoring in divestments and the probable reinvestments that need to be made into Syngenta.

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Monsanto Doesn't Need Syngenta

Seeking Alpha: Strong Soy And A Deep Pipeline Supports Monsanto

Investors have unquestionably grown more and more concerned about the ag sector over the past 12 months. Corn and soybean prices have rebounded from the end of September, but soy prices in particular are well below the year-ago levels. With less profitable insurance levels likely for 2015, planted acres may well come under pressure and some farmers may be tempted to skimp on seed traits as a way of saving money.

That's not a great backdrop for Monsanto (NYSE:MON), but I continue to believe that Monsanto will be hurt less than rivals like DuPont (NYSE:DD) and Syngenta (NYSE:SYT). Increasing competition is a risk, as the Chinese have approved traits from Syngenta, Bayer, and Dow's (NYSE:DOW) delayed launch of Enlist will most likely eventually become a full launch (albeit not until 2016).

What Monsanto continues to have in its favor is a meaningful yield advantage that supports its value proposition to farmers, not to mention a deep pipeline of traits targeting disease resistance, yield enhancement, and other productivity initiatives. Add in the potential of precision ag/analytics, biologicals, and RNAI-based products, and there is still a valid argument for Monsanto as a long-term holding even if the next year or two are more challenging.

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Strong Soy And A Deep Pipeline Supports Monsanto

Seeking Alpha: Monsanto Looking To Balance The Near-Term And Long-Term Opportunities

I don't think it's unfair to ask if Monsanto (NYSE:MON) is running out of rabbits to pull out of its hat to satisfy the notoriously short-term attention spans of the Street. The Brazilian launch of Intacta has gone well, the company's Climate Corp offerings are off to a good start, the company maintains an impressive lead in trait development, and has multiple long-term opportunities like dual-stack soybeans, microbials, and biocides. Yet, the company no longer posts big quarterly beats and expectations for next year have come down due in part to weaker fundamentals in the corn market.

I believe it's a matter of perspective. For long-term investors, I don't think there's a better ag company out there, and I expect Monsanto to widen its lead in the seed/traits business, add new opportunities to its productivity/protection business, and really make the most of its Climate Corp offerings. In the short term, though, the shares have held their own with DuPont (NYSE:DD) and Bayer (OTCPK:BAYRY) and beaten Syngenta (NYSE:SYT), but the going may be getting a little tougher.

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Monsanto Looking To Balance The Near-Term And Long-Term Opportunities

Seeking Alpha: Weak Crop Prices Weigh On SLC Agricola

Weak crop prices are music to the ears of BRF SA (NYSE:BRFS) shareholders, but quite another matter for companies like SLC Agricola (OTCPK:SLCJY) and Brasilagro (NYSE:LND). Although the majority of SLC Agricola's value stems from buying undeveloped land and turning it into much more valuable developed land, weak prices are nevertheless bad for near-term sentiment and results. Without the leverage to sugar and ethanol of Adecoagro (NYSE:AGRO) and the leverage to Argentina of Cresud (NASDAQ:CRESY) (and to some extent Adecoagro), SLC Agricola has been left behind this year but still offers some appealing value for the future.

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Weak Crop Prices Weigh On SLC Agricola

Seeking Alpha: S&W Seed Company Still Building Toward Big Things

Sometimes it's better if a company can do what it needs to do without investors flipping out over every quarterly report or speculating on long-distant product opportunities. I believe that is particularly true in the case of agriculture, where it is pretty much impossible to accelerate the growing seasons and where companies deal with a customer base that is notoriously stubborn and risk-averse.

That brings me back around to S&W Seed Company (NASDAQ:SANW). This company had a pretty exciting 2012 and 2013, due in part to enthusiasm over the company's efforts to grow stevia but also do to general excitement over most things in the agricultural sector. With less bullishness in ag stocks, as well as setbacks in the stevia efforts and investors realizing that a shift toward new alfalfa seed varieties wasn't going to happen in a couple of quarters, the shares have settled down to a +/- 10% range in 2014. While there are still valid questions as to whether the company's efforts to expand into dormant varieties and introduce new tropical, salt-tolerant, and Roundup Ready seeds, I think this is still an interesting long-term opportunity.

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S&W Seed Company Still Building Toward Big Things