The Mosaic Company's MOS stock looks to be a solid bet now based on its strong fundamentals and upbeat earnings outlook.
The fertilizer maker has seen its shares pop roughly 17% year to date. If you haven’t taken advantage of the share price appreciation yet, the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead.
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 see what makes Mosaic stock an attractive investment option at the moment.
Mosaic has outperformed the industry it belongs to over a year. The company’s shares have shot up 22.8% compared with roughly 4.1% decline recorded by the industry. 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.
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%.
Strong Earnings Outlook
Mosaic, in November, bumped up 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 $1.91, reflecting an expected year-over-year growth of 75.2%. Moreover, earnings are expected to register a 21.6% growth in 2019.
Estimates Going Up
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 12.4%. 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 6.7, cheaper compared with the industry average of 11.
Favorable Market 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.
Moreover, 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.
Upbeat Prospects From Vale Fertilizantes Buyout
The acquisition of Vale Fertilizantes from Vale S.A. VALE 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 in 2018.
Other Stocks to Consider
Other top-ranked stocks worth considering in the basic materials space include Israel Chemicals Ltd. ICL and Cameco Corporation CCJ.
Israel Chemicals has an expected earnings growth rate of 19.4% for the current year and carries a Zacks Rank #2. The company’s shares have rallied 35% over the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Cameco has an expected earnings growth rate of 66.7% for the current year and carries a Zacks Rank #2. The company’s shares have gained 12% in the past year.
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