The Mosaic Company MOS is among the companies in the basic materials space that have seen a significant run-up in share price this year. The fertilizer giant’s shares are up roughly 21% year to date, significantly outperforming the industry’s decline of roughly 5%.
Impressive earnings outlook, upbeat prospects from the Vale Fertilizantes acquisition and favorable demand and pricing fundamentals for fertilizers have contributed to the rally in the company’s stock.
Mosaic has a market cap of roughly $11.9 billion. Average volume of shares traded in the past three months was around 4,272.1K.
Let’s delve deeper into the factors that are driving this Zacks Rank #1 (Strong Buy) stock.
Strong Earnings Outlook
Mosaic, in November, raised adjusted earnings per share (EPS) guidance for 2018, considering strong business performance and lower expected effective tax rate for the year.
The company expects adjusted EPS in the range of $1.80-$2.00, up from the prior view of $1.45-$1.80. It 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 $1.91, reflecting an expected year-over-year growth of 75.2%. Moreover, earnings are expected to register a 61.8% growth in fourth-quarter 2018.
Earnings estimates for 2018 have also 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 12.4%.
Favorable Industry Fundaments
Mosaic is well-positioned to leverage the favorable demand and pricing environment for fertilizers. It is benefiting from improving market fundamentals for phosphates and potash.
The company expects phosphates sales volumes in the band of 1.7-2 million tons for the fourth quarter of 2018, reflecting underlying firmness in demand and supply dynamics as well as normal year-end seasonality. It sees continued growth in global demand for phosphates and expects record shipments in 2019.
Mosaic is also gaining from higher fertilizer prices, which boosted growth in the top line in the third quarter. Higher average realized sales prices also enabled the company achieve double-digit sales growth in the Phosphates and Potash segments.
Prices of major crop nutrients have gained strength this year on the back of strong global demand and tightened supply. Mosaic expects global phosphate demand growth to outpace supply additions next year, 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 this year.
Vale Fertilizantes Buyout
The Vale Fertilizantes acquisition makes Mosaic one of the leading fertilizer manufacturing and distribution companies in Brazil. The buyout has enabled the company 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 (with $140-$160 million in synergies expected in 2018) 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.
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 are Nexeo Solutions, Inc. NXEO, BHP Billiton PLC BBL and Cameco Corporation CCJ, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Nexeo has an expected earnings growth rate of 29.7% for the current fiscal year. The company’s shares have gained 7% in the past year.
BHP Billiton has an expected earnings growth rate of 9.8% for the current fiscal year. The company’s shares have gained 9% over the past year.
Cameco has an expected earnings growth rate of 66.7% for the current year. The company’s shares have rallied 16.6% in the past year.
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