Mosaic Company Valuation – October 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 10 Most Undervalued Companies for the Defensive Investor – September 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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Downloadable PDF version of this valuation:
ModernGraham Valuation of MOS – October 2015
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $12,056,025,923 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 2.71 | Pass | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Fail | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Fail | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 93.74% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 9.54 | Pass | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.23 | Pass | |
| Score | ||||
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 2.71 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 1.17 | Fail | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Fail | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $3.60 |
| MG Growth Estimate | -1.85% |
| MG Value | $17.25 |
| Opinion | Overvalued |
| MG Value based on 3% Growth | $52.19 |
| MG Value based on 0% Growth | $30.59 |
| Market Implied Growth Rate | 0.52% |
| Current Price | $34.35 |
| % of Intrinsic Value | 199.08% |
Mosaic Company does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the short dividend history and the insufficient earnings stability over the last ten years.  The Enterprising Investor is concerned by the level of debt relative to the net current assets and 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 explore other opportunities at this time or proceed with a cautious speculative attitude.
As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $4.11 in 2011 to an estimated $3.60 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 0.52% 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.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$6.99 |
| Graham Number | $44.59 |
| PEmg | 9.54 |
| Current Ratio | 2.71 |
| PB Ratio | 1.23 |
| Dividend Yield | 2.98% |
| Number of Consecutive Years of Dividend Growth | 1 |
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Most Recent Balance Sheet Figures
| Total Current Assets | $5,100,100,000 |
| Total Current Liabilities | $1,883,000,000 |
| Long-Term Debt | $3,761,800,000 |
| Total Assets | $17,776,900,000 |
| Intangible Assets | $1,709,600,000 |
| Total Liabilities | $7,640,100,000 |
| Shares Outstanding (Diluted Average) | 363,300,000 |
Earnings Per Share History
| Next Fiscal Year Estimate | $3.11 |
| Dec14 | $2.68 |
| May13 | $4.42 |
| May12 | $4.42 |
| May11 | $5.62 |
| May10 | $1.85 |
| May09 | $5.27 |
| May08 | $4.67 |
| May07 | $0.95 |
| May06 | -$0.35 |
| May05 | $0.46 |
| Dec03 | -$1.22 |
| Dec02 | -$0.97 |
| Dec01 | -$0.57 |
| Dec00 | -$3.00 |
| Dec99 | -$6.75 |
| Dec98 | -$0.08 |
| Jun97 | $2.03 |
| Jun96 | $1.56 |
Earnings Per Share – ModernGraham History
| Next Fiscal Year Estimate | $3.60 |
| Dec14 | $3.83 |
| May13 | $4.37 |
| May12 | $4.36 |
| May11 | $4.11 |
| May10 | $3.06 |
| May09 | $3.18 |
| May08 | $1.72 |
| May07 | $0.09 |
| May06 | -$0.41 |
| May05 | -$0.64 |
| Dec03 | -$1.63 |
| Dec02 | -$1.98 |
| Dec01 | -$2.22 |
| Dec00 | -$2.44 |
| Dec99 | -$1.66 |
| Dec98 | $0.83 |
Recommended Reading:
Other ModernGraham posts about the company
Other ModernGraham posts about related companies
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.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
