Fertilizer demand is expected to improve this year amid depleting grain inventories. Moreover, as prices are expected to scale, we think The Mosaic Company (MOS), a top industry participant, is well-positioned to surge. In this piece, we wanted to take a closer look at why you should add this stock to your watchlist.

The Mosaic Company (MOS) is one of the world’s leading producers and marketers of concentrated phosphate and potash crop nutrients. In the fiscal year 2022, MOS’ Fertilizantes segment saw its distribution business market share grow to approximately 18%, up from 16% in the prior year.

The company’s Potash operating earnings were $2.77 billion in 2022, up 230.7% from the prior year, while its Phosphate operating earnings rose 14.2% year-over-year to $1.35 billion.

The fertilizer company has ample room for growth this year. Its expansion of micro essentials capacity at the Riverview plant in Florida is to be completed by the end of the year. It also aims to construct a test plant in North America that should allow the company to enter new markets like lithium iron phosphate batteries and food production.

Furthermore, MOS anticipates returning to shareholders through a combination of regular common dividends, special dividends, and share repurchases. The company expects to initiate an accelerated share repurchase of $300 million in the first quarter of 2023.

Its Board of Directors has approved a special dividend of $0.25 per share to be distributed on March 30, 2023. While MOS has a 4-year average dividend of 0.86, its annual dividend of $0.80 yields 1.59% on the current share price. The company’s dividend payouts have increased at a 47.6% CAGR over the past three years. It has paid dividends consecutively for the past 11 years.

The stock has gained 14.4% year-to-date, closing the last trading session at $50.20. It gained 2.7% intraday. It is currently trading above its 50-day moving average of 47.30.

Here are the factors that could influence MOS’ performance in the upcoming months:

Solid Financials

MOS’ net sales increased 54.8% year-over-year to $19.13 billion in the fiscal year that ended December 31, 2022. Its operating earnings rose 93.9% year-over-year to $4.79 billion. Net earnings attributable to MOS grew 119.7% year-over-year to $3.58 billion, and adjusted EPS came in at $11.01, representing an increase of 118.5% year-over-year.

Joc O’Rourke, President and CEO of the company, said, “Despite significant volatility through the year, our business was able to deliver strong free cash flow and return significant capital to shareholders, while also reinvesting in the business while also reinvesting in the business.”

Discounted Valuation

In terms of forward non-GAAP PEG, MOS is currently trading at 0.06x, which is 96.9% lower than the industry average of 1.95x. Its forward Price/Cashflow multiple of 4.18 is 46.8% lower than the industry average of 7.87.

MOS’ forward non-GAAP P/E of 7.28x is 47.8% lower than the 13.95x industry average. Its forward EV/EBITDA multiple of 5.71 is 24.3% lower than the 7.54 industry average.

High Profitability

MOS’ trailing-12-month net income margin of 20.15% is 158.2% higher than the 7.80% industry average. Its 28.95% trailing-12-month EBIT margin is 126.9% higher than the 12.76% industry average.

Furthermore, its trailing 12-month ROCE, ROTC, and ROTA of 33.86%, 21.68%, and 15.89% are higher than the industry averages of 12.83%, 7.36%, and 5.57%, respectively.

POWR Ratings Show Promise

MOS has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. MOS has an A grade for Value in sync with its discounted valuation.

It also has a B grade for Quality and Growth, justified by its high profitability and solid financials.

MOS is ranked #8 out of 29 stocks in the Agriculture industry.

Click here to access MOS’ Stability, Momentum, and Sentiment ratings.

Bottom Line

MOS’ low-cost potash operations, portfolio of value-added phosphate products, and leading footprint in Brazil, the world’s fastest-growing major agricultural market, should help the company deliver strong results in 2023.

Also, the company plans to venture into high-demand markets like lithium iron phosphate batteries and food production, which should boost its revenue streams. So, the stock might be worth adding to your watchlist in February 2023.

How Does The Mosaic Company (MOS) Stack up Against Its Peers?

MOS has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Agriculture industry with an A (Strong Buy) or B (Buy) rating: AGCO Corporation (AGCO), Golden Agri-Resources Ltd (GARPY), and Yara International ASA (YARIY).

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MOS shares were unchanged in premarket trading Thursday. Year-to-date, MOS has gained 11.69%, versus a 4.73% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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