Option Trade 
Monsanto Company (NYSE:MON) Puts 
Tuesday, October 06, 2015

**OPTION TRADE: Buy the MON Nov 2015 85.000 put (MON151120P00085000) at approximately $2.70. Place a pre-determined sell at $5.50.

Note: No protective stop losses added as yet -- but if you wish to do so make it $1.10.

by Ian Harvey

October 06, 2015


Monsanto Company (NYSE: MON), a provider of agricultural products for farmers and the world’s largest seed supplier, releases fourth-quarter and year-end results in a report on Wednesday 7th October, which is expected to be widely scrutinized by investors and analysts after the company's failed effort to acquire rival Syngenta AG on Wednesday. Analysts expect the company to announce earnings of ($0.02) per share and revenue of $2.79 billion for the quarter.

Monsanto has been in a steady downward trend through the majority of the year. The stock is down 28.6% on the year, and with analysts expecting a breakeven quarter, the stock will likely continue to struggle.

Monsanto has been in a strong downward trend, and unfortunately even an upbeat earnings report is not likely enough to breathe life back into the stock. The company has dealt for years with pressure over its genetically modified seeds, but the real dark cloud hanging over the company right now involves its herbicides.

There is mounting evidence of weed resistance to glyphosate, which is the key ingredient in Monsanto's Roundup products. So far, the Food and Drug Administration has identified 14 different weed strains that are resistant to the herbicide. Farmers are working on new ways to combat weeds in their crops, and if it turns out that Roundup is no longer a viable option Monsanto will be in some serious trouble.

There are also ongoing claims that the company's herbicides lead to cancer, and the company is facing lawsuits from former farm workers who claim their illnesses are related to extended exposure to the product. The World Health Organization has already stated that glyphosate is a "probable" cause of cancer.

Monsanto's seed division also stands to suffer if weeds become resistant to glyphosate. The company has built a seed business in excess of $10 billion on seeds that are resistant to glyphosate, so that farmers can use the herbicide without harming crops. If it turns out that glyphosate is no longer effective in controlling weeds, it would also lead to lower demand for the company's seeds.

The stock is in a strong downward trend, and even a strong earnings report is unlikely to bring life back into the stock. The consensus calls for flat earnings, but the street's whisper is actually a bit worse, forecasting a loss of $0.02 during the quarter.

Technical Details

Monsanto Company traded up 0.80% during trading on Monday, hitting $87.71. 3,290,768 shares of the stock traded hands.

The stock has a 50-day moving average price of $93.03 and a 200-day moving average price of $107.65.

Monsanto Company has a 12 month low of $81.22 and a 12 month high of $126.00.

The stock has a market cap of $41.03 billion and a P/E ratio of 16.22.


Previous Earnings

Monsanto Company last announced its quarterly earnings results on Wednesday, June 24th. The company reported $2.39 earnings per share for the quarter, beating the Thomson Reuters’ consensus estimate of $2.06 by $0.33. The business earned $4.58 billion during the quarter.

During the same quarter last year, the firm posted $1.62 earnings per share. The business’s quarterly revenue was up 7.7% compared to the same quarter last year. Equities analysts predict that Monsanto Company will post $5.76 earnings per share for the current fiscal year.

Future Earnings

In the last four quarters, the company has generated a positive average surprise of 10.08%, beating the estimates in two out of four occasions.

Monsanto’s products continue to enjoy high demand as farmers always seek to maximize their crop yield. Backed by innovative products like Intacta, Bollgard II XtendFlex cotton and Roundup Ready 2 Xtend soybean, the company expects to witness higher revenues in the to-be-reported quarter. However, short-term market headwinds might hurt the company’s performance. Also, unfavorable currency movements and cyclical downswings in the agricultural industry might adversely impact the company’s results in the quarter under review.

Taking into account the current market scenario, Monsanto expects to break even in fourth-quarter fiscal 2015. Maintaining its EPS guidance for fiscal 2015, the company expects earnings to trend the lower end of the $5.75–$6.00 range. Original free cash flow too is projected to scale the lower end of the $2.0–$2.2 billion range. In order to combat business issues such as reducing acres and currency headwinds, Monsanto aims to lower its operational expenses by $300–$500 million within 2017, aided by tactical cost-saving programs.


Monsanto has been reeling from a number of setbacks around the globe. Here’s some of the main reasons that 2015 has been a giant headache for the biotech giant:-

• Roundup Probably Causes Cancer -- n March, the International Agency for Research on Cancer (IARC), the World Health Organization’s cancer arm, said that the controversial herbicide glyphosate — the main ingredient in Monsanto’s popular weedkiller Roundup — is “probably carcinogenic to humans.”

In June, France banned Roundup. French Ecology Minister Segolene Royal said, “France must be on the offensive with regards to the banning of pesticides.”

And earlier this month, California issued a notice of intent to list glyphosate as a carcinogen.

In April, U.S. citizens filed a class action lawsuit against Monsanto, claiming that the company is guilty of false advertising by claiming that glyphosate targets an enzyme only found in plants and not in humans or animals.

• In addition to its potential cancer-causing properties, Roundup has been linked to a host of other health issues, environmental problems and the record decline of monarch butterflies. And in September, another of the company’s herbicides got slammed when a French appeals court confirmed that Monsanto was guilty of chemical poisoning, upholding a 2012 ruling in favor of Paul Francois, whose lawyers claimed the company’s Lasso weedkiller gave the cereal farmer neurological problems, including memory loss and headaches.

• EU Nations Ban GMOs -- In addition to the glyphosate backlash, Monsanto has had to deal with several EU countries who have said no to the company’s GM crops. A new European Union law signed in March allows individual member countries to be excluded from any GM cultivation approval request. European opposition to GMOs has been strong: Unlike in the Americas and Asia, where GMO crops are widely grown, only Monsanto’s pest-resistant MON810, a GMO maize, is grown in Europe. Several nations have taken advantage of the new exclusion law: Scotland, Germany, Latvia, Greece, France and recently, Northern Ireland, have all invoked it. In August, Scotland became the first EU nation to ban the growing of genetically modified crops by requesting to be excluded by Monsanto’s application to grow GMO crops across the EU.

Soon after Germany’s decision, Latvia and Greece announced that they too are taking advantage of the EU law. France, too, is using the opt-out law to ensure the country’s GMO ban remains in place.

• Another one of the concerns is related to whether pricing would be significantly negative for the company in F2016.

• Investors have also been concerned about the failed bid from Syngenta AG (ADR) (SYT). While some investors view this as a sign that the concerns regarding pricing pressure are true, others believe that this was Monsanto’s way to protect its patent portfolio from taxes.

• In addition, the declining in glyphosate prices have also led to some concerns with some “vocal bears” expecting a decline in the segment’s gross profit by close to 50 percent. There have also been FX headwinds that are expected to impact the F2016 EPS by about $0.40.

• Also, investors have voiced concerns regarding speculations that “the company is going to throw more money at precision agriculture,” which many already view as a failed initiative.

Analysts Opinions

Morgan Stanley’s Vincent Andrews expects the company to post its F4Q EPS and F2016 guidance below the consensus and mentioned that execution on costs and the balance sheet would be needed for the stock to fare better.

The company has also been the subject of a number of other research reports:-

• Sanford C. Bernstein initiated coverage on Monsanto Company in a report on Wednesday, September 23rd. They issued an “underperform” rating on the stock.

• Atlantic Securities upgraded Monsanto Company from an “underweight” rating to a “neutral” rating and increased their target price for the company from $95.00 to $120.00 in a report on Monday, June 8th.

• Barclays reduced their price target on Monsanto Company from $128.00 to $125.00 and set an “equal weight” rating on the stock in a research note on Monday, June 29th.

• Piper Jaffray reaffirmed an “overweight” rating and issued a $121.00 target price (down from $133.00) on shares of Monsanto Company in a research report on Monday.

• Finally, Canaccord Genuity reiterated a “buy” rating and issued a $143.00 price target on shares of Monsanto Company in a report on Tuesday, June 23rd.

Three equities research analysts have rated the stock with a sell rating, nine have given a hold rating and eight have issued a buy rating to the stock. Monsanto Company presently has an average rating of “Hold” and an average price target of $120.66.

Harvey’s Options Volatility Indicator


Therefore, based on the facts above, and Harvey’s Options Volatility Indicator, the following option trade is recommended…..

**OPTION TRADE: Buy the MON Nov 2015 85.000 put (MON151120P00085000) at approximately $2.70. Place a pre-determined sell at $5.50.

Note: No protective stop losses added as yet -- but if you wish to do so make it $1.10.

”Success is simple. Do what's right, the right way, at the right time.”

Option Tip for your Success!
Options traders are not successful because they win.
Options traders win because they are successful.

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