Monsanto (MON:NYSE), the maker of Franken-flakes and the weed-killer Roundup, announced earnings today and they were not good. Sure, the company said net income for the third quarter was $694 million, or $1.25 a share – which was more than the $1.18 a share the market expected.
But it was down from $811 million, or $1.45 a share last year. And the future doesn’t look any better. It’s time to pull out your put options because this bad boy is going to $62.15 a share and soon.
Three reasons for the fall…
Reason #1: Cheaper Competition
The company announced today that Monsanto’s third quarter profit was down 14% and it blamed low-cost competition for its Roundup Herbicide. According to CBS MarketWatch:
Sales of its genetically-modified crop seeds, which include traits to guard against root worm, improve yield and protect crops from stronger herbicides, have been soaring since 2003 at double-digit rates.
Roundup, however, appears to have hit a peak and is projected to ring up about $2 billion this year. By 2012, that number is expected to be halved to about $1 billion.
It’s never a good sign when your number-one product, which accounts for 44% of revenue, gets cut in half….
Reason #2: Restructuring
The company is going to fire 900 people and take a restructuring charge of $400 million (or 47 cents) in the next quarter. According to Yahoo Finance:
“Company officials said they were creating a separate division for the struggling herbicide business to help stabilize and ‘better align spending and working capital needs’ around the unit.
“They said they had no plans to try to grow the business, and would not rule out divestiture, preferring instead to focus on a more profitable seed sector.”
That’s another way of saying they just lost their most profitable line. Restructuring is never good news for a share price.
Reason #3: Head and Shoulders Chart Pattern
Monsanto’s share price chart is showing a classic head and shoulders pattern. The distance between the head at $93 and the neckline at $78 is $15. According to standard technical analysis, that would put your price target at $62.
It also just dipped below its 200-day moving average, showed a bearish MACD and took out its support of $77.
Bye, bye MON, it’s been good to know you…
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