Event: MON reports its fiscal Q4 earnings tomorrow before the open. The options market is implying about a 3.25% one day move, which is above the 4 qtr avg of about 1.6%, and slightly above the 8 qtr avg of about 3%.
Sentiment: Wall Street analysts are generally positive on the stock, with 20 Buys, 5 Holds and 1 Sell, with an average 12 month price target of around $120. Despite the analyst optimism, the stock has actually underperformed the broader market in 2013, up around 10% for the year.
Options Open Interest: Open interest is evenly split between calls and puts. The bulk of the open interest is in Oct and Jan14, with the 110 strike calls having a large amount of open interest in both expiries. The Jan14 90 puts also have significant open interest. The stock’s high in 2013 was 109.33 in mid-May.
Price Action / Technicals: MON’s long-term weekly chart shows the importance of the $94-$95 area, which has been alternately been support and resistance support over the past 7 years:
Fundamentals: MON has grown earnings relatively consistently since 2010. Its expected growth rate of earnings over the next 2 years is around 15%. The stock has stalled recently has grain prices have remained weak (corn almost hit a new 52 weeks low today), but overall demand for Monsanto seeds has remained resilient.
Monsanto’s trailing 12 month P/E has been between 20 and 25 for most of the past 4 years:
MON is fairly valued compared to its own valuation history and relative to the market. Barring a major demand surprise, the stock is unlikely to move much given its past consistency in execution. If the implied move were higher, I would be interested in possibly selling implied vol on MON, but at these levels, risk/reward is not that attractive.
Volatility: Implied volatility in MON is lower than normal ahead of earnings given the low level of recent realized volatility:
Trades: MON just doesn’t offer great risk/reward on selling volatility here, so we’re going to hold off on any new trades, despite what seems like a continued rangebound situation from where we sit.