The Mosaic Company ( MOS Quick Quote MOS - Free Report) is gaining from demand strength for phosphate and potash and actions to improve its cost structure. However, softer fertilizer prices may weigh on its top line and margins. The company’s shares are down 27.3% over a year compared with a 27.8% decline recorded by its industry.
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Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
Healthy Demand, Cost Cuts Aid MOS
Mosaic is benefiting from strong demand for phosphate and potash. Higher agricultural commodity prices and attractive farm economics are driving demand for fertilizers globally. Farmer economics remains attractive in most global growing regions on strong crop demand, affordable inputs, and favorable weather.
Demand for grains and oilseeds remains high along with strong farm economics. Strong agricultural commodity pricing trends and improved farmer affordability are likely to drive demand for fertilizers in the balance of 2023. Strong demand is expected to support the company’s sales volumes. Mosaic is also taking actions to reduce costs amid a still-challenging operating environment. Its actions to improve its operating cost structure through transformation plans are expected to boost profitability. The company also remains committed to carrying out investments with high returns with moderate capital expenditures, such as the expansion of MicroEssentials capacity at its Riverview facility, constructing a new blending and distribution center in Palmeirante, Brazil, executing the construction of a purified phosphoric acid plant for sale in North Americ, and installing a Hydrofloat flotation system at Esterhazy's K2 mill. The estimated total capital expenditures for 2023 are $1.3-$1.4 billion. Mosaic also aims to return substantial free cash flow in 2023 to shareholders. The company strives to maintain a healthy balance sheet. Softer Prices to Hurt Margins
Weaker prices for potash and phosphate may impact the company’s margins. Prices of phosphate and potash retreated since the back half of 2022 from their peak levels attained in the first half riding on the impacts of the Russia-Ukraine war and disruptions due to the sanctions in Belarus. Lower selling prices hurt sales and margins across the company’s Phosphate and Potash segments in the second quarter of 2023. Despite some recovery of late, weaker year-over-year fertilizer prices are expected impact the company’s profitability in the third quarter of 2023.
Stocks to Consider
Better-ranked stocks worth a look in the basic materials space include
Carpenter Technology Corporation ( CRS Quick Quote CRS - Free Report) , Hawkins, Inc. ( HWKN Quick Quote HWKN - Free Report) and Alamos Gold Inc. ( AGI Quick Quote AGI - Free Report) . The Zacks Consensus Estimate for current fiscal-year earnings for CRS is currently pegged at $3.48, implying year-over-year growth of 205.3%. Carpenter Technology currently carries a Zacks Rank #1 (Strong Buy). You can see . the complete list of today’s Zacks #1 Rank stocks here Carpenter Technology has a trailing four-quarter earnings surprise of roughly 10%, on average. The stock has rallied around 115% over the past year. Hawkins currently carrying a Zacks Rank #1. It has a projected earnings growth rate of 18.9% for the current year. Hawkins has a trailing four-quarter earnings surprise of roughly 25.6%, on average. HWKN shares are up around 55% in a year. Alamos Gold currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for AGI's current-year earnings has been revised 7.5% upward over the past 60 days. The Zacks Consensus Estimate for current fiscal-year earnings for Alamos Gold is currently pegged at 43 cents, implying year-over-year growth of 53.6%. AGI shares have surged around 57% in a year.