CF Industries Holdings, Inc. (CF) manufactures and sells hydrogen and nitrogen products for clean energy, fertilizer, emissions reduction, and other industrial applications worldwide. On the other hand, The Mosaic Company (MOS) produces and markets concentrated phosphate and potash crop nutrients in North America and internationally. The company operates through three segments: Phosphates; Potash; and Mosaic Fertilizantes.
The Energy Independence and Security Act of 2007 (EISA) mandating biofuels led to a surge in pesticide demand. Clean energy initiatives worldwide further push agrochemical-based institutions to upgrade their products and accelerate the move to greener alternatives. In addition, large-scale investments are being made in this sector to develop new varieties of fertilizers and pesticides for better efficacies. Biopesticides are one of the potential areas in which the United States has made significant advancements.
The Crop Protection Chemicals Market is projected to reach $73,530.7 million in 2026, registering a CAGR of 3.7%. Therefore, both CF and MOS should benefit significantly.
CF has gained 31.2% over the past six months, while MOS has gained 23.9%. However, in terms of the past year’s performance, MOS is the winner with a 103.7% gain versus CF’s 91.3%. Moreover, MOS’ 66.7% gain year-to-date compares with CF’s 54.6% return.
But which stock is a better buy now? Let’s find out.
On September 21, CF announced the restarting of the ammonia plant at its Billingham, UK, complex. Earlier, the company provided updates on tje restoration of its ammonia plants at the Donaldsonville Complex in Louisiana. CF had shut down all production units at the facility as part of its contingency plans for Hurricane Ida. The commencement of operations in the facilities should improve the company’s cash flows in the near term.
In August, MOS announced a new $1 billion share repurchase authorization, following the early redemption of $450 million in notes due November 2021. This marks a step forward toward the company’s goal of retiring $1 billion of debt over time. These initiatives should improve the company’s cost position and strengthen its balance sheet.
Recent Financial Results
CF’s net sales increased 31.9% year-over-year to $1.59 billion in the fiscal second quarter that ended June 30. Adjusted EBITDA stood at $599 million, up 22.2% from the same period last year. Net earnings attributable to common stockholders grew 29.5% from the year-ago value to $246 million. The company’s EPS increased 28.1% year-over-year to $1.14.
For the second quarter that ended June 30, MOS’ net sales increased 37% year-over-year to $2.80 billion. Its operating earnings grew 464.1% from its year-ago value to $484 million. Net earnings attributable to MOS improved 822.4% from the same period last year to $437.20 million. The company’s EPS improved 850% year-over-year to $1.14.
Past and Expected Financial Performance
CF’s revenues and EBITDA grew at CAGRs of 2.8% and 8.6% over the past three years, respectively. Analysts expect CF’s revenue to increase 60.7% in the current quarter, 68.4% in the next quarter, and 39.7% in the current year. The company’s EPS is expected to grow 961.5% in the current quarter, 345% in the next quarter, and 206.8% in the current year. However, its EPS is expected to decline 5.2% per annum over the next five years.
On the other hand, MOS’ revenues and EBITDA grew at CAGRs of 6.6% and 16.2% over the past three years, respectively. Analysts expect the company’s revenue to increase 55.8% in the current quarter, 40% in the next quarter, and 41.5% in the current year. The company’s EPS is expected to grow 582.6% in the current quarter, 166.7% in the next quarter, and 444.7% in the current year. Moreover, MOS’ EPS is expected to grow 7% per annum over the next five years.
CF is more profitable with a gross profit margin and EBITDA margin of 23.25% and 37.99%, compared to MOS’ 19.73% and 23.12%, respectively.
However, MOS’ ROE, ROA, and ROTC of 14.81%, 4.50%, and 6.24% compare with CF’s 10.66%, 4.45%, and 5.41%, respectively.
In terms of forward EV/Sales, CF is currently trading at 3.28x, 55.5% higher than MOS’ 1.46x. Also, CF’s forward EV/EBITDA ratio of 8.29 is 38% higher than MOS’ 5.14.
Thus, MOS is relatively affordable here.
MOS has an overall grade of B, which equates to a Buy rating in our proprietary POWR Ratings system. On the other hand, CF has an overall grade of C, which translates to a Neutral rating. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
MOS has a Growth grade of A, consistent with its substantial rise in net earnings and EPS of 822.4% and 850% year-over-year, respectively, in the second quarter. On the other hand, CF has a Growth grade of B, in sync with its net earnings and EPS growth of 29.5% and 28.1% year-over-year, respectively, for the same period.
MOS has a grade of B for Value. MOS’ forward EV/EBIT ratio of 7.27 is 37.6% lower than the industry average of 11.67. On the other hand, CF has a grade of C for Value. This is justified as CF’s forward EV/EBIT ratio of 11.89 is 2% higher than the industry average.
Of the 31 stocks in the Agriculture industry, MOS is ranked #6, while CF is ranked #15.
Bio-based agrochemical products, producing lower residual toxicity levels against synthetic crop protection chemicals, have gained significant importance over the past years due to the clean energy initiatives and organic cultivation practices. Both CF and MOS should benefit from the growing market. However, lower valuation and more robust financial performance make MOS a better choice here.
Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Agriculture industry here.
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MOS shares were trading at $40.31 per share on Friday morning, up $0.77 (+1.95%). Year-to-date, MOS has gained 76.23%, versus a 18.55% rise in the benchmark S&P 500 index during the same period.
About the Author: Subhasree Kar
Subhasree’s keen interest in financial instruments led her to pursue a career as an investment analyst. After earning a Master’s degree in Economics, she gained knowledge of equity research and portfolio management at Finlatics. More...
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