The Mosaic Company MOS is an attractive play in the fertilizer space based on its strong fundamentals and upbeat earnings outlook. The company is benefiting from favorable demand and pricing fundamentals for fertilizers.
The fertilizer giant has outperformed the industry it belongs to over a year. Its shares have popped 15.6% compared with roughly 11.4% decline recorded by the industry. Impressive earnings outlook and upbeat prospects from the Vale Fertilizantes acquisition have contributed to the rally in the company’s stock.
The trend in earnings estimate revisions also indicates a solid earnings outlook for Mosaic.
Mosaic currently has a Zacks Rank #2 (Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy) or #2, offer the best investment opportunities for investors.
Let's delve deeper into the factors that make Mosaic stock a compelling investment option at the moment.
Upbeat Earnings Outlook
Mosaic, during its third-quarter 2018 call, raised its adjusted earnings per share guidance for 2018 to the range of $1.80-$2.00 from the prior view of $1.45-$1.80, considering strong business performance and lower expected effective tax rate for the year.
The company also expects adjusted EBITDA for 2018 in the range of $1.90-$2 billion, up from the previous view of $1.80-$1.95 billion.
The Zacks Consensus Estimate for earnings for 2018 for Mosaic is currently pegged at $1.92, reflecting an expected year-over-year growth of 76.2%. Moreover, earnings are expected to register a 23.7% growth in 2019.
Positive Earnings Surprise History
Mosaic has outpaced the Zacks Consensus Estimate in three of the trailing four quarters. In this timeframe, the company has delivered a positive average earnings surprise of roughly 7.3%.
Estimates Moving North
Earnings estimate revisions have the greatest impact on stock prices. Estimates for 2018 for Mosaic have moved up over the past three months, reflecting analysts’ confidence on the stock. Over this period, the Zacks Consensus Estimate for 2018 has increased by around 12.9%. The same for 2019 also rose 7.4%.
Valuation looks attractive as Mosaic’s shares are currently trading at a level that is lower than the industry average, suggesting that the stock still has upside potential.
Going by the EV/EBITDA (Enterprise Value/ Earnings before Interest, Tax, Depreciation and Amortization) multiple, which is often used to value fertilizer stocks, Mosaic is currently trading at trailing 12-month EV/EBITDA multiple of 6.6, cheaper compared with the industry average of 11.
Favorable Industry Fundamentals
Mosaic is well placed to leverage the favorable demand and pricing environment for fertilizers. It is benefiting from improving market fundamentals for phosphates and potash. The company sees continued growth in global demand for phosphates and expects record shipments in 2019.
Prices of major crop nutrients also gained strength in 2018 on the back of strong global demand and tightened supply. Mosaic expects global phosphate demand growth to outpace supply additions in 2019, providing support to prices as well as margins. Lower Chinese exports and slower-than-expected ramp up of new facilities have contributed to tighter phosphates supply. Tighter market conditions have also boosted potash prices.
Synergies of Vale Fertilizantes Acquisition
The buyout of Vale Fertilizantes has allowed Mosaic to capitalize on the rapidly growing Brazilian agricultural market. The buyout is projected to generate $275 million of annualized improved cash flow by the end of 2020 along with providing considerable leverage to improvements in the crop nutrient business cycle. The company already achieved more than $100 million in synergies as of third-quarter 2018. It expects $140-$160 million in synergies for full-year 2018.
The Mosaic Company Price and Consensus
The Mosaic Company Price and Consensus | The Mosaic Company Quote
Other Stocks to Consider
Other top-ranked stocks worth considering in the basic materials space include Ingevity Corporation NGVT, Quaker Chemical Corporation KWR and Israel Chemicals Ltd. ICL.
Ingevity has an expected earnings growth rate of 21.5% for the current year and carries a Zacks Rank #1. Its shares have gained 15% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Quaker Chemical has an expected earnings growth rate of 21.1% for the current year and carries a Zacks Rank #2. Its shares have gained 16% in the past year.
Israel Chemicals has an expected earnings growth rate of 2.7% for the current year and carries a Zacks Rank #2. The company’s shares have rallied 39% over the past year.
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