Monsanto (MON) +17.29% *updated tearsheet available*
Monsanto reported strong earnings and revenues for its first fiscal quarter and raised its full-year outlook. The company continues to benefit from market share gains due to the quality of its portfolio.
With the most significant part of its business cycle still to come, the first quarter results signaled a good start to the year, though it primarily reflects the impact of its Latin American businesses. The company said its second and third quarters are expected to be the primary drivers for full-year results since they reflect the relative size of its U.S. businesses and the importance of its seeds-and-traits business.
Monsanto is exceptionally well positioned, the balance sheet is strong and competitors are struggling to keep up, much less narrow the gap. While profitability in the agriculture sector is clearly important for Monsanto, the value proposition in the products and the near-global political focus on agricultural output positions the company for strong growth.
Monsanto has a strong record of buybacks, but pays a relatively tiny dividend considering the strength and likely longevity of profitability. As markets become more restive, a higher dividend might be more beneficial for the stock’s valuation than continued buybacks.
Intel (INTC) -6.05%
Intel said it expects fourth quarter revenue of about $8.2 billion, down 20 percent sequentially and 23 percent year over year, and below its previous guidance of $8.74 billion. Intel’s fourth-quarter gross margin, the percentage of sales left after production costs, was at the lower end of the range it had predicted. Intel also wrote down the value of its investment in Clearwire Corp by $950 million.
Intel cited the weakness in end demand and inventory reductions by its customers in the global PC supply chain as causes for the shortfall. Global PC production fell 15 percent from the previous quarter with PC companies making 3 percent fewer notebooks and 27 percent fewer desktop machines.
The earnings warning from Intel was not entirely surprising given the other semiconductor warnings that have stacked up in recent weeks. Intel’s smaller rival, Advanced Micro Devices (AMD), cuts its sales forecast on December 4, saying it expected revenue to decline about 25 percent.
Much of the upside for Intel is dependent upon a new chip called Atom, designed specifically for simple, inexpensive mobile machines such as netbooks. The problem is that Intel has traditionally commanded a premium for its processors, but it’s not clear the company can continue to command that premium given that vendors such as Hewlett-Packard seem willing to choose chips from rival Advanced Micro Devices (AMD) for these simple machines.
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Peter Lazaroff, Junior Analyst
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