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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