Will The Mosaic Company
Stock Recover in 2016?
Image source: Potash Corp.
2015: A disastrous year for Mosaic
Interestingly, there’s a huge disconnect between the
drop in Mosaic’s stock and its operational performance
in 2015.
Impressive growth on top and bottom lines
Extra dividends + buybacks tooMosaic raised its quarterly dividend by 10% last year and initiated a
share buyback program worth $1.5 billion
So why did Mosaic’s shares tumble despite the higher
profits and dividends?
Farmers’ income -- a key driver of fertilizer consumption -- dropped sharply on tumbling crop prices
Demand from Brazil -- a key fertilizer market--slumped on currency fluctuations and economic uncertainties
Prices of potash and phosphate declined further in 2015 as supply exceeded demand
Macro concerns triggered the sell-off
So does that mean Mosaic shares could fall
further in 2016? Let’s find out.
Muted price forecasts for key crops like corn and soybeans on swelling inventories
Net farm income for 2015 estimated to touch 13-year lows
China likely to dump huge amount of phosphate on lower export taxes
Both, Mosaic and Potash Corp, curtailed potash production in Q4 in anticipation of lower demand in the near future
The bear case
Optimistic forecast for 2016 industry phosphate shipments of 66 million tonnes-68 million tonnescompared to 65.5 million tonnes in 2015.
Mosaic’s selling, general, and administrative expenses declined 9% during the nine months ended September 30, 2015 on rigid cost control and demand-based adjustments to production
Impressive $1 billion in free cash flow in the past twelve months despite headwinds
Growing shareholder returns
The bull case
Foolish takeaway: A good bargain
While business conditions remain challenging, Mosaic stands out for its strong operational performance and financial standing. With the stock currently trading at only 7.7 times trailing earnings and 8.6 times its free cash flow, I believe Mosaic has little downside but huge potential upside for 2016 and beyond.
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