Analyzed the financial statements and the strategy of Monsanto (NYSE: MON) and built a free cash flow model for the company. The team presented and defended the key assumptions of the free cash flow model, as well as the fundamental value.

1. Valuation of
Monsanto
Xinyu Ji
Jialing Zhu
Ruiqi Liu
Usman Riaz
Zhifan Li

2. General Company analysis
• Background:
• Monsanto Company is an agricultural company which operates in two segments,
Seeds and Genomics, and Agricultural Productivity.
• Five forces :
• Competitive rivalry: There are several large players and many smaller firms in the
biotech industry, specifically in agriculture products including seeds, genetics, and
herbicides.
• Power of customers: Demand for products depends on public acceptance of
genetically modified foodstuffs, a highly regulated and controversial topic.
• Power of suppliers: The chemical manufacturing industry is not very concentrated,
with many firms having fewer than 20 employees. , if one supplier is no longer
desirable others can easily be found.
• Threat from substitutes: The biotechnology industry is highly regulated and has very
highly valued intellectual property making substitute products difficult to produce.
• Threat from new entrants: . Barriers to entry are increasing as the industry matures
and more regulations come about.
• FCFE model used: leverage is relatively stable, and expect not to change in the
future.

3. Growth
Growth Drive
14.00%
8.40%
Bullish
Bearish
Obstacles
Below the line
Business Growth
•Global business portfolio drives
gross profit expansion
•R&D grow slower than historically
Return Value to shareholders
Worry of GM food
•2 billion, 3- year buyback program
•Dividends remain a priority
•Genetically modified foods are not
accepted by some countries
FY 2013 Ongoing Earnings
Growth of >20%
Economic Downturn
Current
Ratio Analysis
2009A
2010A
2011A
2012A
2013A
Sales growth
EBITDA growth
EPS growth
3.2%
10.8%
4.97%
-10.4%
-39.5%
-47.11%
12.6%
41.0%
47.26%
14.2%
21.0%
28.04%
10.0%
11.0%
21.37%
Gross margin
EBIT margin
EBITDA margin
Tax rate
Net margin
57.7%
26.5%
31.1%
28.5%
18.0%
48.4%
15.3%
21.0%
24.8%
10.6%
51.4%
21.2%
26.3%
30.2%
13.6%
52.2%
23.3%
27.9%
30.2%
15.1%
51.5%
24.0%
28.2%
26.7%
16.7%
Return on equity (ROE)
20.8%
10.9%
13.7%
17.0%
19.5%
Payout Ratio
26.2%
52.0%
37.5%
31.4%
32.3%
Retention Ratio
73.8%
48.0%
62.5%
68.6%
67.7%
Hight Growth
2014E
2015E
Stable Growth
2016E
2017E
2018E
2019E
5.9%
6.5% 9.8% 9.3%
8.3%
6.9%
8.9%
8.5% 18.1% 13.5% 12.0% 10.5%
20.00% 19.00% 18.00% 17.00% 16.00% 14.00% Bullish
6.00% 6.400% 6.800% 7.200% 7.600% 8.40% Bearish
52.2% 51.2% 51.7% 51.8% 51.7% 51.7%
22.1% 21.2% 22.3% 22.6% 22.4% 22.1%
26.9% 26.1% 27.1% 27.2% 27.1% 26.9%
30.6% 27.2% 31.1% 27.6% 31.6% 30.0%
15.3% 15.4% 15.4% 16.3% 15.4% 15.5%
16.4%
17.0%
35.9%
35.9%
64.1%
64.1%
17.0%
16.2%
34.9%
34.9%
65.1%
65.1%
17.6%
15.3%
33.9%
33.9%
66.1%
66.1%
18.2%
14.5%
32.9%
32.9%
67.1%
67.1%
18.8%
13.7%
32.0%
32.0%
68.0%
68.0%
20.0% Bullish
12.0% Bearish
30% Bullish
30% Bearish
70.0% Bullish
70.0% Bearish

4. Beta & Cost of Equity
Beta calculated through regression
Analysis for the years 2006 to
2013: 1.0234
Estimated Risk Premium through
Gordon Growth Model:
0.25
0.2
0.15
0.1
y = 1.023x + 0.000
R² = 0.371
0.05
Series1
Linear (Series1)
0
value of stock
expected dividend
expexted growth rate
104.88
-0.15
-0.1
-0.05
0
-0.05
1.900772
0.1
0.15
-0.1
0.1580
0.05
-0.15
-0.2
↑
Rf (high growth)
2.65%
Rf (stable)
4.65%
b(high growth)
1.0234
b(stable)
1.0000
E(Rm)
17.61%
70% bullish E(R)+30% bearish E(R)
Cost of Equity
High Growth Period: 17.96%
Stable Period: 17.61%

5. FCFE
Free Cash Flow to Equity
(Year Ending August 31)
Net Income
Add: Depreciation
Less:Capital Expenditures
Inventory, net
Total Current Assets
Cash and Cash Equivalents at End of
Period
Accounts payable
Income taxes payable
Dividends payable
Customer payable
Non-Cash Working Capital
2009A
2010A
2011A
High
Growth
2014E
2978.4
$2,482
2630.9
615 3.00% 633.45
741 2.00% 755.82
Current
2012A
2013A
$2,109
$1,109
$1,607
$2,045
548
916
602
755
613
540
622
646
2,934
7,883
2,739
7,122
2,591
8,809
2,839
9,658
1,956
676
79
145
307
7,654
1,485
752
66
151
83
7,324
2,572
839
117
161
94
7,617
3,283
794
75
200
14
8,131
(330)
293
514
(101)
Less:Change in Non-Cash Working
Capital
2015E
3544.3
2799.3
652.45
770.94
2016E
4182.2
2989.6
672.03
786.36
2017E
4893.2
3204.9
692.19
802.08
2018E
5676.1
3448.4
712.95
818.12
Stable Growth
2019E
6470.8 bullish
3738.1 bearish
734.34
834.49
2,947
10,077
3,668
995
91
228
12
8,030 102% 8150.4 8272.7 8396.8 8522.7 8650.5 8780.3
Short-term debt proceeds
75
75
84
30
22
Long-term debt proceeds
0
0
299
499
32
Short-term debt reductions
(45)
(101)
(74)
(42)
(29)
Long-term debt reductions
(71)
(4)
(193)
(629)
120.45 122.26 124.09 125.95 127.84 130.00
(2)
Plus: Net Cash Inflow from
Borrowings
FCFE
($41)
$1,700
($30)
$1,256
$116
$1,503
($142)
$1,365
$23
$2,480
($15) ($15) ($15) ($15) ($15) ($15)
$2,721 $3,289 $3,929 $4,642 $5,428 $6,226 bullish
$
$
$
$
$
$
2,373 2,544 2,736 2,954 3,200 3,493 bearish

6. CONCLUSION
Bullish
(70%)
Bearish
(30%)
Cash Flow (High Growth)
$ 11,837.04
$ 8,433.33
Terminal Price (Stable)
$ 69,811.10
$ 16,848.67
Total Value
$ 81,648.14
$ 25,282.00
Components of Value
539.70
Shares Outstanding
Total Value per Share
Potential Appreciation
Recommendation
$
163.83
55.8%
Actual
Target price
539.70
$
46.84
-55.45%
$105.15
128.74
22.75%
BUY