Grow Returns with Syngenta
We remain buyers of Syngenta AG (SYT), after the Swiss agrochemicals group's first-quarter results. We believe Syngenta is one of the safest plays in the sector, which should be reflected in higher valuations.
We are raising our target price to $65, as re-rating continues and currency effects. The depth of its product mix, robust business model, and our confidence in the management's ability to cut costs effectively, support our positive view on the stock.
One of Syngenta's key strengths is its broad base of strong, profitable products in two main divisions: crop protection and seeds. The company builds on these strengths by managing the two as independent units with strong management focus, while looking for opportunities to capture synergies across these two divisions, wherever appropriate.
Syngenta trades at 23.7x our 2008 EPS estimate. We think the discount to
Monsanto (MON)is unwarranted, even though Syngenta has lagged behind in the genetically-modified seeds segment. We believe Syngenta should trade in the 27.0x-30x range, which yields a target price of $65. The stock may be more volatile going forward, as the premium valuation is digested by investors but we believe there is room for further upside.
Not Putting New Money in Nucor
We keep our Hold rating on Nucor Corp. (NUE) and believe that the steelmaker will benefit over the next few quarters as more than half of its sheet volumes are under long-term price contracts, which will provide a cushion against higher raw material costs. Nucor's constant efforts to reduce cost, higher steel prices, lower interest rates, strong cash flow position, and a dominant acquisition strategy make us optimistic about the stock's performance in the near term. However, a slowdown in demand from the automobile sector and increased production in China are matters of concern.
Nucor has a strong cash flow and balance sheet, which helps the company to aggressively pursue accretive acquisitions. We also believe that Nucor will continue to raise dividend payments and/or share buybacks. However, Nucor faces many near-term challenges in a market gripped with fears of the U.S. economy slipping into a recession. Large auto companies like
General Motors (GM) and
Ford (F) have cut back on production, which will hurt demand for a variety of Nucor's products. The company's raw material position also remains a concern, as scrap prices rise from past lows and natural gas prices remain high posing threats for future earnings.
Currently, shares of Nucor are trading at 11.8x our 2008 EPS estimate of $6.15. Based on higher steel prices and lower interest rate we raise our six-month target price to $76. This is 12.4x our 2008 EPS estimate. However, we continue to believe that near-term negatives, including the threat of competition, might weigh on the stock.
Core Labs Keeps Competitive
We keep our Buy rating on Core Laboratories NV (CLB), based on its prospects in the current oilfield cycle.
