Analyst Calls Pharmacia's Monsanto A 'Deep Value Story'
Beth M Mantz / Dow Jones Newswires 13oct00
| Currently,
Roundup accounts for 70% of sales, with the traditional seed
business and tech feeds for genetically modified foods comprising
the remainder.
Roundup's patent expiration in late September poses one of the biggest questions for the company in the near term, but Carson believes the herbicide will continue to have expanded volume growth, as a result of decreased prices staving off generic competition and rivals supplying the herbicide. |
|
NEW YORK -- J.P. Morgan Securities Inc. analyst Don Carson called Monsanto Co., the Pharmacia Corp. (PHA) unit that will hold an initial public offering next Tuesday, a "deep value story."
If the offering is priced at $22.50 a share, in between the range of $21 and $24 a share, Carson said the valuation would be quite low, about six times estimated earnings before interest, taxes, depreciation and amortization. He compared the anticipated price with the upcoming offering of Syngenta AG, the spinoff of combined agribusiness operations of Novartis AG (NVS) and AstraZeneca PLC (AZN), and the sale of American Home Products Corp.'s (AHP) American Cyanimid to BASF AG (BF).
After the offering, Pharmacia will retain its nearly 85% ownership in Monsanto for two years in order to account for the event as a pooling. Once that time expires, Pharmacia can give the shares to its shareholders, which Carson thinks is unlikely, or will try to sell its interest. Carson mentioned Dow Chemical Co. (DOW), DuPont Co. (DD), and Bayer AG (G.BAY) as possible buyers.
With a strong balance sheet, pretty solid cash flow, and expansion of the Roundup herbicide franchise, Monsanto should achieve high single-digit sales growth of between 5% and 7% over the next few years, and with cost-cutting measures, 15% earnings-per-share growth, Carson said.
He is forecasting Monsanto to earn $1.55 a share in 2000 and $1.80 a share in 2001.
Currently, Roundup accounts for 70% of sales, with the traditional seed business and tech feeds for genetically modified foods comprising the remainder.
Roundup's patent expiration in late September poses one of the biggest questions for the company in the near term, but Carson believes the herbicide will continue to have expanded volume growth, as a result of decreased prices staving off generic competition and rivals supplying the herbicide.
Carson also expects increased acreage of insect-resistant Roundup Ready corn plant crops and corn rootworm-resistant crops, that could drive future growth.
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