Mosaic Company Analysis – July 2015 Update $MOS
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 – July 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 stock analysis showing a specific look at how Mosaic Company (MOS) fares in the ModernGraham valuation model.
Company Profile (obtained from Google Finance): The Mosaic Company is a producer and marketer of concentrated phosphate and potash crop nutrients. The Company is a single source supplier of phosphate and potash-based crop nutrients and animal feed ingredients. It operates in two segments. The Phosphates segment owns and operates mines and production facilities in Florida, which produce concentrated phosphate crop nutrients and phosphate-based animal feed ingredients, and processing plants in Louisiana, which produce concentrated phosphate crop nutrients. The 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. It mines phosphate rock in Florida and process rock into finished phosphate products at facilities in Florida and Louisiana. It also mines potash in Saskatchewan and New Mexico. The Company has other production, blending or distribution operations in Brazil, China, India and Paraguay.
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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 4Â of the following 5 tests or be suitable for a defensive investor: Score = 4/5
- 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 -Â PASS
- Dividend Record – currently pays a dividend -Â PASS
- Earnings growth – EPSmg greater than 5 years ago -Â FAIL
Valuation Summary
Key Data:
| Recent Price | $44.90 |
| MG Value | $26.39 |
| MG Opinion | Overvalued |
| Value Based on 3% Growth | $48.95 |
| Value Based on 0% Growth | $28.70 |
| Market Implied Growth Rate | 2.40% |
| Net Current Asset Value (NCAV) | -$5.95 |
| PEmg | 13.30 |
| Current Ratio | 3.24 |
| PB Ratio | 1.62 |
Balance Sheet – March 2015
| Current Assets | $5,252,000,000 |
| Current Liabilities | $1,621,000,000 |
| Total Debt | $3,775,000,000 |
| Total Assets | $17,632,000,000 |
| Intangible Assets | $1,687,000,000 |
| Total Liabilities | $7,440,000,000 |
| Outstanding Shares | 367,900,000 |
Earnings Per Share
| 2015 (estimate) | $2.90 |
| 2014 | $2.68 |
| 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
| 2015 (estimate) | $3.38 |
| 2014 | $3.57 |
| 2013 | $3.95 |
| 2012 | $3.88 |
| 2011 | $3.45 |
| 2010 | $2.78 |
Dividend History
Free Cash Flow
Conclusion:
Mosaic Company qualifies for both the Defensive Investor and the Enterprising Investor.  The Defensive Investor is only concerned with the short dividend history.  The Enterprising Investor is only concerned with the lack of earnings growth over the last five years.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with the evaluation.  As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $3.45 in 2011 to an estimated $3.38 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 2.4% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.
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 any 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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