Agricultural company Syngenta (NYSE:SYT) has merged its two major divisions, seeds and crop protection, in an attempt to grow the company.While most observers believe the strategy (announced back in February) has merit for the long term, there is less consensus about chances for shorter term success.

TUTORIAL: Fundamental Analysis

A Major Re-Combining
Syngenta is putting together its two largest divisions in what has been termed a "major restructuring" of the agri-giant.The company plans to use this realignment as a springboard for increased sales of its seed and genomics products as well as its other chemicals, while cutting costs. The company maintains the merger of its units will improve not only cross-selling opportunities for its products, but streamline research and technology within the company. Investors recently have bid up the ADRs on Syngenta, but many are taking more of a wait-and-see attitude on the short-term effects of the moves. (For related reading, see The Merger- What To Do When Companies Converge.)

Syngenta's Business
Syngenta has about a $31 billion market cap, and is the largest agrochemical business in the world. Its $9 billion crop protection division is number one in the world, while its $3 billion seed and genomics business is number three in the world. Its first quarter results reported in mid-April beat estimates and showed a 14% revenue increase from the previous year's quarter to $4.02 billion. Estimates for full-year EPS in 2011 were raised 73 cents to $4.53 and 46 cents in 2012 to $4.98. The company's annual profits in 2010 were $1.4 billion, which have more than doubled in five years, while its annual sales have reached $11.6 billion, a more than 45% increase during the same period. (Companies can manipulate their numbers, so you need to know how to determine the accuracy of EPS. For more, see How To Evaluate The Quality Of EPS.)

More on Syngenta
The recent stock price for Syngenta hit the high-$60s range on ADRs, while the stock has traded between just under $43 to near $72 in the last 52 weeks.The company trades at a PE of 22.4 and a forward multiple of 14.52. Syngenta had long-term debt close to $2.6 billion as of the end of 2010, which was down from $3.3 billion at the end of 2009. Syngenta competes with European-based global giants BASF (OTC:BASFY) and Bayer AG (OTC:BAYZF), along with Dow Chemical (NYSE:DOW), DuPont (NYSE:DD) and Monsanto (NYSE:MON).

Second Thoughts
In a recent investors' and analysts' conference in London in June, Syngenta CEO Michael Mack maintained that the merging of the two units is already beginning to work and that the cost cutting and growth elements of the plan will pay off . Observers, however, weren't so sure. Some were disappointed by the lack of further specifics regarding guidance for the company's performance.

Syngenta is due to report earnings on July 22, but little additional light was shed on how the changes might already impact the top and bottom lines. Some analysts fear the lack of specifics indicate that the company won't meet its lofty new targets and that its numbers will come in low. Added to this are the concerns that the crop protection business hasn't had a good pricing history in the face of rising input costs. Other concerns revolved around the uncertainty of rebates, corn prices, as well as competition from generics, not to mention continued government controls on genetically modified organisms, or GMOs. Any or all these headwinds may blunt Syngenta's progress.

The Bottom Line
The potential headwinds, though considerable and real, should not dramatically hamper Syngenta in the long run, but may push down its numbers in the short run. That said, we are still in the midst of a global agri-boom, and even the eurozone economic crisis and otherwise slow global economic recovery, while it may forestall major gains, isn't going to stop Syngenta, which is still an ag power. Investors will be keenly watching upcoming results from the company, though. (For related reading on the Euro, see 5 Economic Reports That Affect The Euro.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  2. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  3. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  4. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  5. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  6. Stock Analysis

    Top 3 Stocks for the Coming Holiday Season

    If you want to buck the bear market trend by going long on consumer stocks, these three might be your best bets.
  7. Investing News

    Could a Rate Hike Send Stocks Higher?

    A rate hike would certainly alter the investment scene, but would it be for the better or worse?
  8. Investing News

    Corporate Bonds or Stocks: Which is Better Now?

    With market volatility high, you may think it is time to run for corporate bonds instead of stocks. Before you do take a deeper look into which is better.
  9. Mutual Funds & ETFs

    Using Short ETFs to Battle a Down Market

    Instead of selling your stocks to get gains, consider a short selling strategy, specifically one that uses short ETFs that help manage the risk.
  10. Investing Basics

    How to Diversify with International Stocks

    Diversifying with international stocks can benefit most portfolios, but beware of country risk.
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!