As one of the world’s leading integrated producers of concentrated phosphate and potash, The Mosaic Company’s (MOS) shares have gained 142.6% over the past year and 55.5% year-to-date to close yesterday’s trading session at $34.95 on rising demand and pricing in the agricultural fertilizer market. However, the stock has declined 3.3% over the past month. The price retreat is due to investors’ concerns over reduced output owing to the company’s decision to shut down two mine shafts—K1 and K2—at its flagship potash mine at Esterhazy, Canada nine months ahead of schedule on a recent acceleration of brine inflows.
However, the move is not expected to have a huge impact on MOS’ financials in the long run because MOS’ third Esterhazy mine—K3—will replace the two closed shafts in supplying potash to global customers.
Furthermore, in a major victory for the company, the U.S. International Trade Commission announced in March that it had completed its investigation and determined that subsidized phosphate fertilizer imports from Morocco and Russia have materially injured the U.S. phosphate industry. Consequently, the department will issue countervailing duty orders on phosphate fertilizers from Russia and Morocco, which will remain in place for at least five years. This is expected to deliver MOS a significant competitive advantage.
So, here are the factors that we think could influence MOS’ performance in the coming months:
Decent Historical Growth
MOS’ stock has gained nearly 30% over the past five years and 21.5% over the past three years. This can be attributed primarily to the stable nature of the crop nutrients industry--the global demand for crop nutrients has increased steadily over the past few years. The company’s revenue has increased at a 5.7% CAGR over the past three years and its EBIT grew at a 14.8% CAGR.
Strategic Collaborations
AgBiome and MOS announced a strategic collaboration on March 23, 2021, that is aimed at discovering, developing and launching novel biological approaches to enhancing soil fertility. The collaboration is expected to expand MOS’ innovative offerings in the soil conservation domain. The company also formed a strategic partnership with Sound Agriculture in March to bring a revolutionary nutrient efficiency product to market to boost yields across major row crops and improve soil health.
Robust Financials
MOS’ net sales increased 27.8% year-over-year to $2.30 billion for the first quarter ended March 31, 2021, as the company capitalized on stronger market conditions. Potash sales volume for the quarter increased 5.3% year-over-year to 2 million tonnes and phosphate sales volume came in at 2.1 million tonnes, up 10.5% year-over-year. MOS’ net income in the first quarter was $156.70 million versus a $203 million net loss in the prior-year period. Its adjusted EPS came in at $0.57 compared to a loss per share of $0.06 in the year-ago period.
Impressive EPS and Revenue Growth Estimates
Analysts expect MOS’ revenue to increase 39.4% for the current quarter, ending June 30, 2021, 35.4% for the quarter ending September 30, 2021, and 28.2% in 2021. The company’s EPS is expected to grow 763.6% in the current quarter and 258.8% in 2021. Also, its EPS is expected to grow at a 7% rate per annum over the next five years.
POWR Ratings Reflect Rosy Prospects
MOS has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. Among these categories, MOS has an A grade for Growth, consistent with analysts’ expectations that its revenue and EPS will increase.
The stock has a B grade for Value. This is justified given its 11.78x forward non-GAAP P/E, which is 28.3% lower than the 16.44x industry average. Its 1.23x forward P/S is 23% lower than the 1.60x industry average.
MOS also has a B grade for Momentum, which is in sync with its 59.7% returns over the past six months and 16.2% gains over the past three months.
MOS is ranked #7 of 31 stocks in the Agriculture industry. Click here to see MOS’ ratings for Stability, Sentiment and Quality as well.
Also, click here to access 11 other top-rated stocks in the Agriculture industry.
Bottom Line
MOS’ shares have more than tripled from its 52-week low of $11.51, which it hit on July 9, 2020. The company is expected to grow significantly in the coming months based on strong market conditions and its dominant position in the crop nutrient industry. So, we think it is wise to bet on the stock now.
MOS shares fell $34.95 (-100.00%) in premarket trading Thursday. Year-to-date, MOS has gained 53.09%, versus a 13.44% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.
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