We remain buyers of Syngenta AG (NYSE: SYT - News) after the company's third quarter results. We retain our target price at $65 as re-rating continues. The depth of its product mix, robust business model and highly regarded management team support our positive view on the stock. We believe Syngenta is one of the safest plays on the sector, which should be reflected in higher valuations.
The depth of its product mix makes Syngenta a safe play on the sector. The long-term positives of the company's business model are backed by short-term catalysts. We remain confident in the management's execution capabilities in cost cutting. Potential for rising pay-outs should not be overlooked by investors.
Syngenta is trading at 21.0x our 2008 EPS estimate. We think the discount to Monsanto Co. (NYSE: MON - News) is still unwarranted. We are aware of Monsanto's efforts and progress in Genetic Modified seeds versus Syngenta's, which have lagged, but a 70% premium valuation is still difficult to justify.
Syngenta will soon start showing its Bioscience pipeline and valuations should expand. We believe Syngenta should trade in the 27.0x-30x range, which yields a target price of $65. The discount to its peers has become a premium as the growth prospects for the company and earnings stability drive valuations higher, but still trades at discount to its most direct peer, Monsanto. The stock may be more volatile going forward, as the premium valuation is digested by investors but we believe there is room for a move higher.
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