Despite the uncertain macroeconomic environment, crop nutrient manufacturer The Mosaic Company (MOS) has gained 4.9% in price over the past month and 11.4% over the past year to close the last trading session at $46.72.
MOS missed the consensus EPS and revenue estimates in the third quarter. Its EPS came 5.2% below analyst estimates, and its revenue came 7.5% lower than the consensus estimate. MOS’ President and CEO, Joc O’Rourke, said, “Mosaic delivered record sales in the first nine months of 2022, and we expect favorable fundamentals as we conclude the year and look forward to 2023.”
“We are returning capital to shareholders while strengthening the balance sheet and investing in the business to generate strong results throughout the cycle,” he added.
The company’s potash business operating earnings increased 260.5% year-over-year to $793 million, and its adjusted EBITDA increased 220.2% year-over-year to $871 million. Its phosphates business operating earnings declined 59.8% year-over-year to $131 million, and its adjusted earnings rose 0.4% year-over-year to $481 million.
MOS’ mosaic fertilizantes business’ adjusted EBITDA came in at $343 million, increasing 8.2% year-over-year, and its net revenues rose 49.8% from the prior-year quarter to $2.63 billion.
By the end of fiscal 2022, MOS is expected to have reduced its long-term debt by $1 billion, including a $500 million debt retirement in November.
In the phosphates business, MOS expects a production shortfall of 200,000 tons due to Hurricane Ian in the third quarter leading to delayed shipments at the end of September. Phosphates business’ fourth quarter to be in the range of 1.7 million to 2 million tons. The phosphates business is expected to benefit from lower raw material prices in the fourth quarter.
MOS expects sales volumes to be 2 million to 2.2 million tons for its potash business. The company believes demand trends will begin normalizing in the fourth quarter after muted demand in the last quarter.
Its annual dividend of $0.80 yields 1.71% on the current share price. The company’s dividend payouts have increased at a 47.6% CAGR over the past three years.
Here’s what could influence MOS’ performance in the upcoming months:
Robust Financials
MOS’ net sales increased 56.5% year-over-year to $5.35 billion for the third quarter ended September 30, 2022. Net income attributable to MOS increased 126.3% year-over-year to $841.70 million.
The company’s adjusted EPS came in at $3.22, representing an increase of 138.5% year-over-year. Also, its adjusted EBITDA increased 74% year-over-year to $1.69 billion.
Mixed Analyst Estimates
MOS’ EPS and revenue for fiscal 2022 are expected to increase 131% and 54% year-over-year to $11.64 and $19.03 billion, respectively. Its EPS and revenue for fiscal 2023 are expected to decline 20.1% and 14.9% year-over-year to $9.31 and $16.20 billion, respectively.
Discounted Valuation
MOS’ forward non-GAAP P/E of 4.01x is 70.7% lower than the 13.69x industry average. Its forward EV/EBITDA of 3.07x is 59.3% lower than the 7.55x industry average. Also, the stock's 3.68x forward EV/EBIT is 65.4% lower than the 10.62x industry average.
High Profitability
MOS’s 20.15% trailing-12-month net income margin is 126.8% higher than the 8.88% industry average. Likewise, its 28.95% trailing-12-month EBIT margin is 112% higher than the 13.65% industry average. Furthermore, the stock’s 7.84% trailing-12-month levered FCF margin is 52% higher than the 5.16% industry average.
POWR Ratings Show Promise
MOS has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. MOS has an A grade for Value, consistent with its discounted valuation.
It has a B grade for Quality, in sync with its high profitability.
MOS is ranked #9 out of 28 stocks in the Agriculture industry. Click here to access MOS’ Growth, Momentum, Stability, and Sentiment ratings.
Bottom Line
MOS’ outlook for 2023 and beyond remains strong as the supply of grain, and oilseeds is expected to remain tight in the near future. With the demand for fertilizers remaining robust, the company is expected to benefit from the global supply tightness of potash and phosphates.
Given its robust financials, discounted valuation, and high profitability, it could be wise to buy the stock now.
How Does The Mosaic Company (MOS) Stack up Against Its Peers?
MOS has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Agriculture industry with an A (Strong Buy) or B (Buy) rating: ICL Group Ltd (ICL), Archer-Daniels-Midland Company (ADM), and Yara International ASA (YARIY).
MOS shares were trading at $46.28 per share on Friday morning, down $0.44 (-0.94%). Year-to-date, MOS has gained 5.49%, versus a 1.72% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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