Why Mosaic Stock Can Outperform in 2021

After a recent Analyst upgrade, agriculture stock Mosaic (MOS) has received some investor attention, but is it time to Buy? Patrick Ryan evaluates the company's prospects and whether you should consider buying it. Read more for his insights.

Mosaic (MOS) was recently upgraded from Neutral to Overweight by Jeffrey Zekauskas, an analyst with JPMorgan. Mr. Zekauskas raised the stock's target price to $32.

MOS is a comparably affordable agricultural play, trading at $26. Furthermore, MOS trades at a low EBITDA multiple, making it all the more intriguing as a long-term investment. Mr. Zekauskas believes MOS will generate 6% of its share price in free cash flow. Mr. Zekauskas also noted regulatory recourse had brightened the company's business prospects.

Let's take a look at whether MOS is a buy, hold, or sell.

MOS by the Numbers

MOS, a Tampa Bay-based business, mines potash and phosphate, operating through segments including mosaic fertilizantes and international distribution. MOS is the largest phosphate fertilizers and potash producer in the United States. MOS ended 2020 at $23 and has since ascended to nearly $27. The stock has a forward P/E ratio of 19.79, a reasonable figure even though MOS is not a tech stock and is nearing its 52-week high of $27.90.

Of the dozen analysts who cover MOS, five consider it a "Buy," six recommend holding, and only one advises selling. Furthermore, MOS is ranked 5th out of 37 publicly traded companies in the Agriculture industry. MOS had a 2020 price return of 7.60%, and a three-year price return of 1.01%. 

The Department of Commerce is in MOS's Corner

Rewind to late November, and MOS shares jumped more than 10% in response to a favorable ruling issued by the Department of Commerce's International Trade Administration. The ruling was in response to allegations of foreign exporters' price dumping of phosphate fertilizer. The group recommends implementing tariffs between 23% and 72% on foreign exporters to ensure pricing is in line with market levels in the United States. These tariff suggestions were higher than anticipated, indicating MOS would benefit from the proposed governmental action.

Now that international exporters can't lowball MOS on price when attempting to sell to farmers in the United States, MOS will retain more sales and hike product pricing, boosting its bottom line all the more. Though the tariff hikes are not a certainty, they are likely to be implemented before the spring of 2021. The mere threat of the tariffs has the potential to push exporters to boost prices to prevent governmental penalties down the line. In short, the ruling has the potential to send MOS stock to new heights in the year ahead.

MOS is a Power Ratings Superstar

Few stocks ace the entirety of the POWR Ratings. MOS is one of those rare stocks. MOS has "A" grades in the Industry Rank, Trade Grade, Peer Grade and Buy & Hold Grade components. There is a chance MOS will end 2021 as one of the top-rated stocks in its industry.

Are There any Issues with MOS?

At this point, readers are likely wondering whether MOS has any flaws. Let's rewind to early November 2020. MOS reported quarterly earnings in line with analyst predictions. The company's quarterly sales amounted to $2.38 billion. Analysts anticipated pro forma profit earnings per share of 17 cents, yet MOS reported 23 cents. The stock dipped on the news as the figures reported were not as strong as some expected. 

Though sales figures were in line with those anticipated by Wall Street analysts, the company's quarterly sales were down nearly 14% on a year-over-year basis. Furthermore, when MOS earnings are calculated in accordance with GAAP, there is a loss of two cents per share. In short, MOS poses a slight risk in the fact that GAAP earnings are in the red.

Buy, Sell, or Hold?

Buy. MOS fertilizer volumes are up 3% on a year-over-year basis. MOS's Mosaic Fertilizantes segment recently reported its best quarterly sales volume. Add in the fact that fertilizer inventories across the globe are below average, and the demand for MOS's products should remain high as we move further into 2021.

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MOS shares were trading at $28.79 per share on Thursday morning, up $0.69 (+2.46%). Year-to-date, MOS has gained 25.12%, versus a 1.84% rise in the benchmark S&P 500 index during the same period.

About the Author: Patrick Ryan

Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management.


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