Fertilizer Stocks

Mosaic Company Valuation – May 2018 $MOS

Company Profile (excerpt from Reuters): The Mosaic Company, incorporated on March 25, 2004, is a producer and marketer of concentrated phosphate and potash crop nutrients. The Company operates through three segments: Phosphates, Potash and International Distribution. Through its product offering, the Company is a single source supplier of phosphate- and potash-based crop nutrients and animal feed ingredients. As of December 31, 2016, the Company served customers in approximately 40 countries.

MOS Chart

MOS data by YCharts

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of MOS – May 2018

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 $10,625,916,245 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.73 Fail
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 -86.34% Fail
6. Moderate PEmg Ratio PEmg < 20 26.59 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.01 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 1.73 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.98 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

 

Stage 2: Determination of Intrinsic Value

EPSmg $1.04
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $15.03
MG Value based on 0% Growth $8.81
Market Implied Growth Rate 9.05%
Current Price $27.57
% 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 stability or growth over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or 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 $3.83 in 2014 to an estimated $1.04 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 9.05% 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 $27.2. The company pays a dividend of $0.6 per share, for a yield of 2.2%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 26.59, which was above the industry average of 24.96. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-16.03.

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) -$16.03
Graham Number $27.20
PEmg 26.59
Current Ratio 1.73
PB Ratio 1.01
Current Dividend $0.60
Dividend Yield 2.18%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $3,841,400,000
Total Current Liabilities $2,220,500,000
Long-Term Debt $4,823,100,000
Total Assets $20,452,300,000
Intangible Assets $1,760,600,000
Total Liabilities $9,997,300,000
Shares Outstanding (Diluted Average) 384,100,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.20
Dec2017 -$0.31
Dec2016 $0.85
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

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $1.04
Dec2017 $1.33
Dec2016 $2.44
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

Recommended Reading:

Other ModernGraham posts about the company

Most Overvalued Stocks of the S&P 500 – March 2017
Mosaic Company Valuation – February 2017 $MOS
Mosaic Company Valuation – October 2015 Update $MOS
Mosaic Company Analysis – July 2015 Update $MOS
Mosaic Inc. Quarterly Valuation – April 2015 $MOS

Other ModernGraham posts about related companies

CF Industries Holdings Inc Valuation – April 2018 $CF
LSB Industries Inc Valuation – Initial Coverage $LXU
Monsanto Company Valuation – March 2017 $MON
Mosaic Company Valuation – February 2017 $MOS
Scotts Miracle-Gro Inc Valuation – Initial Coverage $SMG
Intrepid Potash Inc Valuation – Initial Coverage $IPI
CF Industries Holdings Inc Valuation – August 2016 $CF
CF Industries Valuation – March 2016 $CF
Monsanto Company Valuation – January 2016 Update $MON
Mosaic Company Valuation – October 2015 Update $MOS

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.

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