September 4, 2008

Zacks Analyst Interview Highlights releases the latest Analyst Interview. Today's interview is with senior analyst Santiago Burgaleta, who discusses Total S.A. (NYSE: TOT), Royal Dutch Shell (NYSE: RDS.A), BP Plc (NYSE: BP), Syngenta (NYSE: SYT) and Monsanto Co. (NYSE: MON).

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Were there any major earnings surprises in the just-reported quarter among companies in your coverage?

In the oil sector and among commodities-based stocks, there is one. Total S.A. (NYSE: TOT) reported net income of 4.73 billion euros ($7.36 billion) versus 3.41 billion euros a year earlier. Adjusted profit was 3.7 billion euros, higher than the 3.1 billion-euro estimate we had.

Total's earnings come after European competitors Royal Dutch Shell (NYSE: RDS.A) and BP Plc (NYSE: BP) reported earlier this week jumps in dollar-denominated profit of 33 percent and 28 percent respectively but exploration and production (E&P) beat expectations on the back of stronger-than-forecast volume growth, which is very positive going forward as investors had questioned Total's ability to maintain production.

Total's oil and gas production was 2.353 million barrels of oil equivalent a day in the quarter, compared with 2.322 million barrels a day in the year-earlier period and 2.426 million barrels in the previous quarter. Total shares have been under pressure recently as Investors believe that Oil prices around 110 USD/barrel are unsustainable, but TOT's production growth and valuation does not warrant such pullback. We still believe European Refiners are pretty cheap around Europe, especially Total, so we would use weaknesses to add to positions.

Syngenta (NYSE: SYT) also surprised on the upside as net income rose to $1.52 billion from $1.22 billion, a year earlier. Syngenta, the maker of the Karate pesticide brand, raised its forecast for earnings growth this year to more than 35 percent as farmers spend more on chemicals and high-yielding crops.

Chief Executive Officer Mike Mack is stepping up his challenge to St. Louis-based Monsanto Co. (NYSE: MON), the world's No. 1 seeds maker, by expanding in genetically modified seeds that resist bugs. Syngenta now aims for "high-teens'' earnings growth next year, up from its "double digit'' target previously. The increase in guidance has been overlooked by investors, but once the pullback in commodities recedes, SYT shares should outperform.

Syngenta raised prices, joining other global chemical makers that are seeking to defend margins against higher raw-material costs. It uses ethyltoluene and other derivatives of oil in its chemicals, and has predicted costs will rise by as much as $50 million this year. But cost cutting measures will offset part of this squeeze.

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