Monsanto Company (MON): Zacks Rank Buy

The USDA recently raised its forecasts for planted corn acreage this year. This is great news for agricultural biotech company Monsanto (NYSE: MON - News).

Earnings estimates have been rising to reflect this increase, sending the stock to a Zacks #2 Rank (Buy).

The company also generates strong cash flows, which it has used to steadily raise its dividend. It currently yields 1.6%.

Company Description

Monsanto provides technology-based solutions and agricultural products to improve farm productivity and food quality. It is headquartered in St. Louis, Missouri and has a market cap of $37.3 billion.

First Quarter Results

Monsanto reported first quarter earnings per share of $0.02, 1 penny ahead of the Zacks Consensus Estimate. This was up from a $0.02 per share loss in the same quarter in 2010.

Net sales were up 7.8% year-over-year as growth was strong across all major crops in the seeds and genomics segment. Cotton seed and traits surged 89.8% driven by an increase in planted acres in Australia. Corn seed and traits, which accounts for one-third of total revenue, was up 7.9%.

The gross profit expanded from 43.5% to 44.7% of sales. Selling, general and administrative expenses declined as a percentage of sales from 29% to 25% due in part to corporate restructuring.

Strong EPS Growth Ahead

Management reiterated its EPS guidance of $2.72 to $2.82 per share in 2011. The Zacks Consensus Estimate is at the upper end of this range at $2.82. This represents 17% growth over 2010 EPS.

The 2012 consensus estimate is currently $3.32, equating to 18% EPS growth.

It is a Zacks #2 Rank (Buy).

Solid Dividend History

Monsanto also expects to generate between $800 million and $900 million in free cash flow in 2011. The company has been using its strong cash flows to return value to its shareholders through consistent dividend increases.

It currently yields 1.6%.

Valuation

Shares are trading at 25.4x forward earnings, a premium to the industry average of 14.0x. Its PEG ratio is more attractive, however, at 1.05.