THIS GIANT IS HARVESTING 20% GROWTH BY FOCUSING ON ITS SOLID BRAND NAMES
(MONEY Magazine) – MONSANTO (MTC) NYSE; $37.75; 1.6% YIELD
During the past 10 years, this $9.3 billion St. Louis manufacturer has recast itself as a high-tech brand-name-goods company. Maker of such diverse products as the Ortho lawn-care line and the NutraSweet sugar substitute, Monsanto will complete its metamorphosis this fall when it spins off its sagging chemical division. Says Paul Raman, an analyst at PaineWebber in New York City: "The sale will focus the company on its three remaining highly profitable divisions: agricultural products, pharmaceuticals and food ingredients."
Analysts give much of the credit for the company's sleeker self to CEO Robert Shapiro, who took over in April 1995 after running the pharmaceutical branch for eight years. He has directed most of his attention so far to the agricultural division, which contributes 40% of sales and is suffering from an enviable problem. The company manufactures the leading agricultural herbicide, called Roundup, which last year added $1.6 billion to revenues. Farmers love it because it is the most cost-effective weed killer available. But it has a nasty tendency to kill crops too, so its use is limited to an application prior to planting.
To enlarge the market for Roundup, Shapiro authorized spending $1.5 billion to develop Roundup Ready seeds. These are genetically altered strains of soybean, canola, corn and cotton designed to stand up to the herbicide, so Roundup could be used effectively throughout the growing cycle. The designer seeds will be on the market by the end of this year. Raman says increased sales of Roundup and the new seeds could add $20 to the stock over the next three years.
The pharmaceutical division has produced another winner in Ambien, a prescription sleeping pill that leaves no lingering drowsiness. With market share growing at 1% a month, Ambien figures to add more than $300 million to company coffers this year.
And then there's NutraSweet, the No. 1 artificial sweetener, whose sales are growing 5% annually. Late last year, the company got a scare when 60 Minutes repeated an academic medical journal's speculation about a possible connection between NutraSweet and brain tumors. False alarm, says Bonnie Wittenburg, an analyst at Dain Bosworth in Minneapolis, who notes that the FDA reiterated its confidence in NutraSweet's safety. With three market leaders helping to drive 20% profit growth, Monsanto's shares could hit $55 in the next 12 months, says Raman. That's a 47% return. --A.W.