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Monsanto draws debt downgrades, but share upgrades
Monsanto suffered a rash of downgrades to its credit rating, but won plaudits from stock analysts, as investors digested its plans to take on debt to boost its growth prospects and support a huge share buyback programme.

The group, the world's biggest seeds company, saw its shares attract a fresh wave of upgrades on Thursday, as analysts continued to react to Wednesday's announcement of a $10bn share repur-chase plan, and a target of doubling earnings per share in five years.

Monness Crespi Hardt raised its target price on Monsanto shares to $140 from $131, with rival bro-ker BMO increased its target price on the stock to $140, from $130.

Earlier, Canaccord Genuity, restating a "buy" rating on the shares, raised its target price by $20 to $155, while Deutsche Bank, lifting its target price by $15 to $145, also reaffirmed its "buy" recom-mendation.

At Citigroup, analyst PJ Juvekar said that "long-term financial and buyback targets are positive for our favourite name in ag".

'Leverage will increase considerably'

The upgrades contrasted with the more cautious reaction from credit monitors, which cut their rat-ings on Monsanto debt by up to three notches thanks to the group's greater willingness to take on debt to support growth and buybacks.

Monsanto, which in its last financial year ran with net cash equivalent to 0.4 times its earnings be-fore interest, tax, depreciation and amortisation (ebitda), on Wednesday unveiled a target of net debt equivalent to 1.5 times ebitda.

Standard & Poor's cut its corporate credit rating on Monsanto to BBB+, from A+, leaving it three notches above junk level.

"The three-notch downgrade… reflects our view that leverage will increase considerably from current levels," S&P credit analyst Henry Fukuchi said.

'Growth-through-acquisition strategy'

At Moody's, which cut its rating to A3 from A1, John Rogers, senior vice-president, said that "Monsanto's new financial targets represent a substantial departure from its past practice, and will significantly weaken credit metrics by the end of fiscal 2015", in August next year.

Fitch, cutting its rating by two notches to A-, said it had also taken Monsanto's willingness for takeovers into account.

"The rating is somewhat constrained by the company's growth-through-acquisition strategy," Fitch said, noting that Monsanto has spent about $4bn on takeovers since 2007 "to broaden its product portfolio into cotton, vegetables and other seeds, [and] expand its geographical footprint".

Fitch said it expected Monsanto's new strategy to see the group "balance" buybacks with "investment opportunities", and Monsanto, which was revealed on Tuesday to have held talks over a takeover of rival Syngenta, indeed stressed its willingness for acquisitions.

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