|Bid||56.730 x 1200|
|Ask||66.750 x 1200|
|Day's Range||63.841 - 64.080|
|52 Week Range||55.420 - 65.860|
|PE Ratio (TTM)||N/A|
|Expense Ratio (net)||0.54%|
In the fiscal third quarter, Deere & Company (DE) reported total revenue of $10.31 billion, inclusive of financial services and other revenue. Deere’s equipment business growth was primarily driven by its acquisition of Wirtgen Group, which added 17% to its revenue. Both of Deere’s reporting segments witnessed significant revenue growth.
In the previous part, we looked at analysts’ recommendations for Deere (DE). In this part, we’ll compare Deere’s valuation with its peer.
Last week, DAP (diammonium phosphate) prices remained flat to positive at most of the locations in the chart below. They were steady, acting as a positive catalyst for companies (MOO) such as Mosaic (MOS), Israel Chemicals (ICL), and Nutrien (NTR).
The fertilizer sector remained under pressure between August 3 and August 13, with the benchmark VanEck Vectors Agribusiness ETF (MOO) declining 2.4% over the period and the S&P 500 Index falling 53 basis points. Clearly, the agribusiness sector was more impacted than the broader market indexes by trade war tensions and the Turkish currency crisis.
Previously in this series, we discussed how the potash supply-demand environment is expected to remain balanced. In 2018, potash prices have gradually risen, which indicates a reversal in the industry’s trend. Last year, the prices remained depressed, which was negative for companies like Intrepid Potash (IPI). The company had to amend its terms with creditors. Nutrien (NTR) and Mosaic (MOS) saw their potash segments’ (MOO) earnings decline.
Where Does the Fertilizer Industry Go from Here? Now, we’ll discuss phosphate fertilizers—the second most heavily used fertilizer type after nitrogen fertilizers. Mosaic (MOS), which is one of the major phosphate fertilizer producers, provided some insights into the phosphate market during its earnings call.
After the earnings release, the stock dropped almost 2% to $86.5 but recovered after that. On August 8, FMC recovered to $89.1, which was almost 1% higher than the closing of $88.3 before the earnings release. The current consensus recommendation for FMC as of August 8 was a “buy.” Out of the 18 analysts in the above chart, three analysts had a “strong buy” recommendation, which was one fewer than last month, while the number of analysts recommending a “buy” remained unchanged at 11 month-over-month.
With most major fertilizer players done with their second-quarter earnings, we discussed how analysts reacted positively and upgraded stocks like CF Industries (CF), Mosaic (MOS), and Nutrien (NTR). To learn more, read Analysts Are Becoming More Bullish on Fertilizer Stocks. In this series, we’ll discuss why fertilizer stocks received several upgrades from Wall Street analysts.
Mosaic (MOS) reported its second-quarter earnings on August 6. The company missed the top-line estimates but beat the bottom-line estimates for the quarter. The overall recommendation for Mosaic as of the date of this writing was a “buy.” Month-over-month, analysts have also become bullish on Mosaic, similar to what we saw for CF Industries. As of August 8, four analysts recommended a “strong buy” on the stock, while six analysts had a “buy” on the stock, which was unchanged over the last month.
The fertilizer sector has gained momentum on the back of favorable fertilizer prices along with a tighter supply environment in the global market. The overall agribusiness sector ETF, the VanEck Vectors Agribusiness ETF (MOO), has gained about 4.1% YTD as of August 8 compared to the S&P 500 Index (SPY), which experienced a 38-basis-point loss over the same period.
Mosaic (MOS) reported its second-quarter earnings on August 6 after the market closed. The company missed the top-line estimates but beat the bottom-line estimates for the quarter. After the company’s earnings release, the stock popped to a high of $30.75 but then fall back to $30.15. On August 6, however, the stock had declined by 1.15%.
Sector rotation in this market continues, and the agribusiness and chemical industries within the materials sector look to be heating up. While their performance on a relative basis is lackluster, on an absolute basis, there are several setups offering reward/risk scenarios skewed in our favor. First, let's take a structural look at the VanEck Vectors Agribusiness ETF ( MOO), which contains exposure to chemical stocks, as there is no exchange-traded fund (ETF) dedicated to that industry.
Intrepid Potash (IPI) reported its earnings on August 2. The company beat the top-line estimates and missed the bottom-line estimates. After the earnings release, Intrepid Potash stock fell almost 22.2% and settled at $3.26 per share. Intrepid Potash reported $51 million in sales, which beat the estimate of $44 million at the time of the report.
CF Industries (CF), which also reported earnings after the market closed, managed to beat estimates, and the stock rose 3.8%. During the second quarter, Nutrien reported consolidated sales of $8.1 billion, which rose 11% year-over-year, and this growth resulted in gross margin expansion to 26% from 23.4% in the corresponding quarter a year ago. Fertilizer companies (MOO) such as Nutrien, Mosaic (MOS), and Intrepid Potash (IPI) are cyclical and report better earnings when they enter the beginning of an upward industry cycle.
CF Industries (CF) reported strong second-quarter earnings. After releasing results, the stock popped about 3.8% in the after-hours market session to $45.8 per share. The company managed to beat both top-line and bottom-line estimates during the quarter.
In this final part of the series, we’ll see how Mosaic’s (MOS) sales estimates and margin expansion are expected to trickle down to its bottom line—EPS. That, in turn, would translate to stock price appreciation.
With expectations that Mosaic’s (MOS) sales will increase, its margins are also expected to expand YoY (year-over-year). Mosaic is expected to report gross income of $359 million, which is expected to translate to a gross margin of 16.2% on sales of $2.2 billion in the upcoming second quarter. For the next four quarters, Mosaic is expected to report gross income of $1.6 billion, a 67% growth YoY.
The Mosaic Company (MOS) is scheduled to release its earnings on August 6 after the market closes. It has had a terrific run so far this year and easily outperformed the benchmark indexes.
Fertilizer affordability last week continued to improve after the Fertilizer Affordability Index reached a peak this year on July 12. The Affordability Index, which is issued by the Mosaic Company (MOS), fell to 0.74x from 0.76x a week ago. The lower the index level, the higher the affordability of fertilizers compared to the base year of 2005 when the index was set to one.
Potash fertilizer prices were broadly unchanged last week at the four locations discussed below. The granular potash prices in the NOLA (New Orleans) region remained unchanged at $238 per metric ton, and the granular potash prices in the Cornbelt region of the US also remained unchanged at $261 per metric ton. Similarly, outside the US, granular potash prices remained unchanged at $326 per metric ton in the Brazil region. As for the standard potash fertilizer prices in the Southeast Asia region, prices remained at $288 per metric ton, which was unchanged week-over-week.
DAP (diammonium phosphate) prices have been rising, but last week they were mixed at most of the locations discussed below. However, phosphate prices remain strong year-over-year, and the increase in prices may explain why Mosaic (MOS), which has large exposure to phosphate fertilizers, rallied this year. Companies (MOO) such as Nutrien (NTR) and Israel Chemicals (ICL) could also benefit from positive DAP price movements.
Last week, the agribusiness sector inched higher. The VanEck Vectors Agribusiness ETF (MOO) ended the week to July 27 up by 1.2%, while the broader market S&P 500 Index (SPY) increased by 62 basis points over the same period. Let’s look at how fertilizer stocks performed last week.
In the second quarter, CF Industries’ (CF) EPS are expected to rise significantly YoY (year-over-year), by 360% to $0.46 from $0.10. Also, over the next four quarters, the company’s EPS are expected to improve to $1.19 from -$0.07.
For many seasoned investors, EBITDA represent companies’ core profitability. Analysts expect CF Industries’ (CF) sales growth and gross margin improvement to trickle down to its core profitability.
CF Industries (CF) sells primarily nitrogen fertilizers, in contrast to Nutrien (NTR), Mosaic (MOS), and Israel Chemicals (ICL), which have exposure to some or all NPK (nitrogen, phosphorous, and potassium) fertilizers (MOO). CF Industries’ sales are expected to grow 8% to $1.2 billion in Q2 2018, marking an improvement from Q2 2017, when its sales fell 1% YoY (year-over-year) to $1.1 billion.