Monsanto Not Impressing Everyone. $MON $DD $SYT

black swan

black swan (Photo credit: Heiaken)

Monsanto (NYSE:MON) just released impressive earnings. the share price has been on quite a tear for the past six months. I have called for an increased dividend to confirm managements belief of a strong future.

Now listen to the folks a FT “Lex” team. They have a few questions. The Lex Team has raised concerns about Monsanto’s premium valuation (relative to DuPont and Syngenta). The concerns arise from material legal disputes with customers in Brazil, stagnant R&D spending and M&A activity.

I have been known to admire a few Black Swans and this time the gaggle seems to read FT. This is an excellent example of long tail risk which can just change the game over night and supposedly surprise everyone.

George Gutowski writes from a caveat emptor perspective. Follow him on twitter@financialskepti or follow his evil twin brother who is writing a Wall Street Murder thriller at twitter@georgegutowski

Monsanto Make Me Believe Increase Dividends $MON

Flowers from a garden in Monsanto, Portugal

Flowers from a garden in Monsanto, Portugal (Photo credit: Wikipedia)

Monsanto Company (NYSE:MON) recently announced encouraging financial news. Improved profitability, improved cash flow and improved cash position all stacking up quite nicely. OK so now what. If management wants to maximize shareholder wealth and keep the long-term buy and hold investor interested they’ll need to boast the dividend and engage the market with promises of a certain payout. Currently they are offering a 1.56% dividend yield. Not exactly attracting the yield hounds is it? A major competitor Dupont (NYSE:DD) has roughly the same market cap with a 3.19% market yield. Looking further Syngenta (NYSE:SYT) with a slightly smaller market cap offers a 2.3% dividend yield.

Monsanto is unlikely to engage in serious financial engineering and repurchase very large quantities of its stock so as to back into a growing EBITDA. So the next logical financial move for Monsanto is to seriously increase its dividend in the very near future. Despite the nice earnings surprise analyst consensus has not shifted wildly. The official lists of institutional shareholders have the usual listing of index fund but a notable lack of yield and or dividend investors is prevalent.

When comparing Monsanto’s shareholder base you’ll note a real decrease in holdings by large value funds. Note the behaviour one would expect from an improving story. Check out Dupont in the very same category and you’ll find growth in this category. Large value investors are more attracted to DuPont than Monsanto. If management decides to walk the dividend walk they will have to transition their MD&A to a more robust level. Currently they present like a marketing company talking about margins and market segments on a macro-economic level.

If Monsanto cannot transition to a dividend yield senior the company will stay as an ag driven cyclical dependent on the weather and crop commodities futures.

George Gutowski writes from a caveat emptor perspective.

DuPont downgrades guidance according to Chair and CEO Ellen Kullman Posture and Position $DD

English: Ellen J. Kullman, Chief Executive Off...

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DuPont (NYSE:DD) issued a CYA press release and talked out of both sides of their mouth at the same time. They downgraded their own guidance blaming more conservative cash management practices by their customers. That mean revenues are off and are expected to stay off for quite some time

Dupont was very gutsy and attributed this quote to their Chair and CEO Ellen Kullman “We are seeing slower growth in certain segments during the fourth quarter, driven by global economic uncertainty. This uncertainty is contributing to ongoing conservative cash management in some supply chains.”

Thank You Ellen Kullman for blaming the economic slow down. What else you got? You know the press release is CYA when the investor relations and public relations contacts do not appear at the bottom for media or investor follow up. You know the press release is CYA because in the future the CEO has been positioned as warning the market about some nasty things that might happen. Unfortunately DuPont has no game and that is the tragedy.

Kullman was a director of General Motors from 2004-2008 but that’s probably another story.

CYA for those of you who do not know is an acronym for “Cover your ass”

George Gutowski writes from a caveat emptor perspective.

DuPont Manages Expectations

Ellen J. Kullman, Chief Executive Officer, DuP...

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DuPont (DD) Chair and CEO Ellen Kullman set up investor expectations until 2015 when she promised Topline growth of 7% and EPS growth of 12%. That of course is classic operation’s leverage as described in most biz schools in one of their introductory courses.

The stock sits at its 52 week high and management needs a way for it to break out. Ellen Kullman was of course speaking at the Bank of America Merrill Lynch Global Industries Conference. The devil will be in the details and every investor call will now listened to in this context.

She has positioned the company as a science-based products and services company. The question becomes is this an industrial company or a high-tech enterprise commanding higher multiples. No discussion or comment about markets. Just a focus on products. I always get worried when the inventors speak to the product and not the solution.

Disclosure: George Gutowski writes from a caveat emptor perspective. I hold no positions in stocks mentioned in this post.