By Rick Desloge, MSNBC.com via Checkbiotech

Monsanto has reinvented itself from a Roundup herbicide company to a seed business -- and Wall Street is starting to notice.

Nearly a decade after shelling out billions to buy its first seed companies, Monsanto spent another $400 million in the past seven years upgrading its facilities. Then it spent $1.7 billion sinking deeper roots into the seed business through two acquisitions this year.

The result: Profits are up, and so is the company's stock, up almost 20 percent from the beginning of the year to its Aug. 31 close of $63.84 a share.

The growth underscores how long it takes to get traction with genetically modified foods, said UBS analyst Andrew Cash.

"Monsanto not only transformed its product mix, it transformed its image with farmers, who now like working with the company," Cash said. That's a change from the late 1990s, when Monsanto was still new in the seed business. The difference came with leadership from Chairman and Chief Executive Hugh Grant, Chief Technology Officer Robert Fraley and other Monsanto executives who took time to understand growing conditions at their customers' farms, Cash said.

UBS was one of two Wall Street firms that recently issued upbeat reports for Monsanto, based largely on its expanding seed operations.

Cash said in an Aug. 4 report that Monsanto could reach $90 a share. Citigroup's Prashant Juvekar released a report Aug. 25 affirming an earlier recommendation for Monsanto and predicting the stock price would reach $80 a share. Both forecasts are substantially above the $60- to $67-per-share range where Monsanto's stock has been trading since early June and are at least $11 a share higher than Monsanto stock has traded in the past year.

The expansion into seeds represented a significant move away from Monsanto's traditional farm herbicides, which historically produced most of the agricultural firm's profit. That changed a couple of years ago when Monsanto's genetically modified seeds and traits became the company's biggest moneymaker.

Monsanto generated a profit of $267 million on sales of $5.5 billion for the year ended Aug. 31, 2004. For the first nine months of the current fiscal year, Monsanto reported net income of $380 million on sales of $5 billion.

This year's seed expansion started in March when Monsanto paid $1.4 billion for Seminis Inc., an Oxnard, Calif.-based fruit and vegetable seed producer that claims to be among the largest in its field in the world. Within weeks Monsanto completed a $300 million purchase of Emergent Genetics Inc. of Boulder, Colo., a company with a 12 percent share of the U.S. cotton seed market.

Monsanto entered the seed field about a decade ago as its patents on agricultural herbicides, including Roundup, were running out. The $400 million in investments since 1998 have allowed Monsanto to cut production costs by 30 percent to 40 percent at its plants, the Citigroup report said. In addition to upgrading, Monsanto combined 138 sites into 67 facilities producing seeds around the world, according to the company.

While the use of Monsanto's genetically modified seeds has produced a wave of controversy in Europe and parts of South America, the seeds continue to gain a stronger foothold on both those continents, said UBS' Cash.

As of the end of 2004, 17 countries have approved use of Monsanto's genetically modified seeds, which now account for 199 million acres planted around the world. That's up from 166 million acres in 2003, Cash said.

The UBS report said Seminis uses about 75 percent hybrid seeds. The company is in the process of converting the remaining 25 percent of its traditional pollinated seeds to hybrid versions, and the conversion could help boost revenue further. UBS pointed out that when Seminis converted the last of its jalapeño pepper market to hybrid from pollinated seeds, the company was able to raise prices from $20 a pound to $1,000 per pound.

The Seminis purchase could lead the company to commercialize more types of biotech seeds, starting with vegetables such as squash and zucchini. Seminis produces 3,500 seed varieties for commercial fruit and vegetable growers, dealers, distributors and wholesalers. Those seeds sell in more than 150 countries worldwide.

"We think it is just a matter of time before consumers are willing to buy other (genetically modified) produce, and (it) provides the underlying reason why Monsanto bought Seminis," the UBS report said.

Citigroup boosted its outlook for the company after visiting Monsanto's seed breeding and production sites in Iowa last month.

Citigroup's report said Monsanto has emerged as a leader in identifying desirable gene traits in crops and transferring those traits into seeds through the breeding process. To support that work, Monsanto has spent $10 million creating three proprietary databases in its information technology systems, the report said.

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