The Mosaic Company’s (MOS - Free Report) stock looks attractive at the moment based on its strong fundamentals and upbeat earnings outlook. The fertilizer giant is well placed to benefit from favorable demand and pricing dynamics for crop nutrients and the acquisition Vale Fertilizantes.
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.
The trend in earnings estimate revisions also indicates a solid earnings outlook for Mosaic.
Let's delve deeper into the factors that make Mosaic stock a compelling investment option at the moment.
Mosaic has outperformed the industry it belongs to over a year. Its shares have popped 20.8% compared with roughly 1.9% decline recorded by the industry. Strong earnings outlook and upbeat prospects from the Vale Fertilizantes acquisition have contributed to the rally in the company’s stock.
Impressive Earnings Outlook
Mosaic, during its third-quarter 2018 call, 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 $1.92, reflecting an expected year-over-year growth of 76.2%. Moreover, the same for the fourth quarter stands at 56 cents, indicating a year-over-year growth of 64.7%. Earnings are also expected to register a 24% 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. Over this period, the Zacks Consensus Estimate for 2018 has increased by around 10.3%. The same for the fourth quarter also rose 12%. Moreover, estimates for 2019 went up 7.7% over the same timeframe.
Improving Industry 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.
Prices of major crop nutrients also gained strength on the back of strong global demand and tightened supply. Mosaic expects global phosphate demand growth to outpace supply additions in 2019, 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.
Vale Fertilizantes Synergy Capture
The acquisition of Vale Fertilizantes 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. Mosaic expects to achieve $140-$160 million in synergies for full-year 2018.
K3 to Provide Cash Flow Benefits
Mosaic is making significant progress with its Esterhazy K3 potash expansion project. The company reached a significant production milestone at the project in late 2018. The company commissioned the production hoist and also delivered the first bucket of potash to the Esterhazy K2 mill.
Mosaic expects Esterhazy operation to be the largest and most competitive underground potash mine in the world following the completion of K3. It also believes that the Esterhazy K3 project is the only new potash mine in the world that is on budget and schedule. The company expects the project to reach full operational capacity by 2024.
Notably, the project is expected to generate a higher return on invested capital compared with the cost of capital. At the same time, it will significantly lower costs and risks by eliminating brine management. Mosaic expects K3 to deliver considerable cash flow benefits and anticipates completion of the project to improve free cash flow by roughly $400 million.
Other Stocks to Consider
Other top-ranked stocks worth considering in the basic materials space include Ingevity Corporation (NGVT - Free Report) , Quaker Chemical Corporation (KWR - Free Report) , Israel Chemicals Ltd. (ICL - Free Report) .
Ingevity has an expected earnings growth rate of 21.5% for the current year and carries a Zacks Rank #1. Its shares have gained 22% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Israel Chemicals has an expected earnings growth rate of 5.4% for the current year and carries a Zacks Rank #1. The company’s shares have rallied 33% over the past year.
Quaker Chemical has an expected earnings growth rate of 21.1% for the current year and carries a Zacks Rank #2. Its shares have gained 26% in the past year.
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