Mosaic Company Valuation – February 2017 $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 Stocks for Using A Benjamin Graham Value Investing Strategy – February 2017. 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’s segments include Phosphates, Potash and International Distribution. Its Phosphates Segment sells phosphate-based crop nutrients and animal feed ingredients throughout North America and internationally. The Company’s Phosphates business 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. Its Potash segment mines and processes potash in Canada and the United States. Its Potash Segment sells potash throughout North America and internationally. Its International Distribution Segment consists of sales offices, crop nutrient blending and bagging facilities, port terminals and warehouses in Brazil, Paraguay, India and China.
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Downloadable PDF version of this valuation:
ModernGraham Valuation of MOS – February 2017
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 | $11,358,674,961 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 1.78 | Fail | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 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 | -42.52% | Fail | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 13.27 | Pass | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.15 | Pass | |
| 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 | 1.78 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 2.29 | 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 | $2.43 |
| MG Growth Estimate | -4.25% |
| MG Value | $0.00 |
| Opinion | Overvalued |
| MG Grade | D |
| MG Value based on 3% Growth | $35.21 |
| MG Value based on 0% Growth | $20.64 |
| Market Implied Growth Rate | 2.39% |
| Current Price | $32.23 |
| % of Intrinsic Value | N/A |
Mosaic Co does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings growth over the last ten years, and the poor dividend history. The Enterprising Investor has concerns regarding 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 should explore other opportunities at this time or proceed cautiously with a speculative attitude.
As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $4.36 in 2012 to an estimated $2.43 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 2.39% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Mosaic Co revealed the company was trading above its Graham Number of $22.48. The company pays a dividend of $1.1 per share, for a yield of 3.4%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 13.27, which was above the industry average of 13.11. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-11.32.
Mosaic Co scores quite poorly in the ModernGraham grading system, with an overall grade of D.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$11.32 |
| Graham Number | $22.48 |
| PEmg | 13.27 |
| Current Ratio | 1.78 |
| PB Ratio | 1.15 |
| Current Dividend | $1.10 |
| Dividend Yield | 3.41% |
| Number of Consecutive Years of Dividend Growth | 2 |
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Most Recent Balance Sheet Figures
| Balance Sheet Information | 9/1/2016 |
| Total Current Assets | $3,449,200,000 |
| Total Current Liabilities | $1,939,400,000 |
| Long-Term Debt | $3,450,300,000 |
| Total Assets | $17,263,200,000 |
| Intangible Assets | $1,651,600,000 |
| Total Liabilities | $7,426,500,000 |
| Shares Outstanding (Diluted Average) | 351,500,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $0.80 |
| Dec2015 | $2.78 |
| Dec2014 | $2.68 |
| May2013 | $4.42 |
| May2012 | $4.42 |
| May2011 | $5.62 |
| May2010 | $1.85 |
| May2009 | $5.27 |
| May2008 | $4.67 |
| May2007 | $0.95 |
| May2006 | -$0.35 |
| May2005 | $0.46 |
| Dec2003 | -$1.22 |
| Dec2002 | -$0.97 |
| Dec2001 | -$0.57 |
| Dec2000 | -$3.00 |
| Dec1999 | -$6.75 |
| Dec1998 | -$0.08 |
| Jun1997 | $2.03 |
| Jun1996 | $1.56 |
| Jun1995 | $1.94 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $2.43 |
| Dec2015 | $3.49 |
| Dec2014 | $3.83 |
| May2013 | $4.37 |
| May2012 | $4.36 |
| May2011 | $4.11 |
| May2010 | $3.06 |
| May2009 | $3.18 |
| May2008 | $1.72 |
| May2007 | $0.09 |
| May2006 | -$0.41 |
| May2005 | -$0.64 |
| Dec2003 | -$1.63 |
| Dec2002 | -$1.98 |
| Dec2001 | -$2.22 |
| Dec2000 | -$2.44 |
| Dec1999 | -$1.53 |
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.
