Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 5 Most Undervalued Companies for the Defensive Investor – January 2015. By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Mosaic Company (MOS) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): The Mosaic Company (Mosaic) is a producer and marketer of combined concentrated phosphate and potash crop nutrients. It is a single source supplier of phosphate-and potash-based crops nutrients and animal feed ingredients. It operates in two segments: Phosphates and Potash. Its Phosphates segment owns and operates mines and production facilities in Florida. Its Potash segment owns and operates potash mines and production facilities in Canada and the United States, which produce potash-based crop nutrients, animal feed ingredients and industrial products. The Company mines phosphate rock in Florida and processes rock into finished phosphate products at facilities in Florida and Louisiana. It mines potash in Saskatchewan, New Mexico and Michigan. In March 2014, the Company announced that it has completed the acquisition of the phosphate business of CF Industries, Inc.
Defensive Investor – must pass at least 6 of the following 7 tests: Score = 6/7
- Adequate Size of Enterprise – market capitalization of at least $2 billion -Â PASS
- Sufficiently Strong Financial Condition – current ratio greater than 2 -Â PASS
- Earnings Stability – positive earnings per share for at least 10 straight years -Â PASS
- Dividend Record – has paid a dividend for at least 10 straight years -Â FAIL
- Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period -Â PASS
- Moderate PEmg ratio – PEmg is less than 20 -Â PASS
- Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 -Â PASS
Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5
- Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 -Â PASS
- Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 -Â PASS
- Earnings Stability – positive earnings per share for at least 5 years – PASS
- Dividend Record – currently pays a dividend -Â PASS
- Earnings growth – EPSmg greater than 5 years ago -Â PASS
Valuation Summary
Key Data:
| Recent Price | $48.69 |
| MG Value | $53.56 |
| MG Opinion | Fairly Valued |
| Value Based on 3% Growth | $49.82 |
| Value Based on 0% Growth | $29.21 |
| Market Implied Growth Rate | 2.84% |
| Net Current Asset Value (NCAV) | -$4.93 |
| PEmg | 14.17 |
| Current Ratio | 3.65 |
| PB Ratio | 1.67 |
Balance Sheet – September 2014
| Current Assets | $5,659,000,000 |
| Current Liabilities | $1,550,000,000 |
| Total Debt | $3,774,000,000 |
| Total Assets | $18,456,000,000 |
| Intangible Assets | $1,741,000,000 |
| Total Liabilities | $7,511,000,000 |
| Outstanding Shares | 375,900,000 |
Earnings Per Share
| 2014 (estimate) | $2.27 |
| 2013 | $4.08 |
| 2012 | $4.42 |
| 2011 | $4.34 |
| 2010 | $1.93 |
| 2009 | $4.28 |
| 2008 | $4.38 |
| 2007 | $0.80 |
| 2006 | $0.18 |
| 2005 | $0.47 |
Earnings Per Share – ModernGraham
| 2014 (estimate) | $3.44 |
| 2013 | $3.95 |
| 2012 | $3.88 |
| 2011 | $3.45 |
| 2010 | $2.78 |
| 2009 | $2.81 |
Dividend History
Conclusion:
Mosaic Company qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor’s only concern is the short dividend history while the Enterprising Investor has no initial issues as the company passes all of the investor type’s requirements.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel very comfortable proceeding with further research and comparing the company to other opportunities.  From a valuation side of things, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $2.78 in 2010 to an estimated $3.44 for 2014.  This level of demonstrated growth supports the market’s implied estimate of 2.84% earnings growth and leads the ModernGraham valuation model, based on Benjamin Graham’s formula, to return an estimate of intrinsic value within a margin of safety relative to the price.
Be sure to check out previous ModernGraham valuations of Mosaic Company (MOS)Â for greater perspective!
The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Mosaic Company (MOS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.
Disclaimer:  The author did not hold a position in Mosaic Company (MOS) or in any other company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.
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