Mosaic Earnings: Stock Hits Earth on Falling Fertilizer Prices and Profits

We maintain our $40 per share fair value estimate for Mosaic MOS after incorporating the company’s first-quarter earnings into our valuation model. Our no-moat rating is also unchanged.

Mosaic shares were down 8% at the time of writing as adjusted EBITDA fell nearly 50% versus the prior year’s quarter due to falling fertilizer prices and higher costs. At current prices, we view shares as fairly valued with the stock trading around our fair value estimate. Accordingly, we recommend investors wait for a larger pullback in shares and for the stock to offer a margin of safety before considering an entry point.

In potash, Canpotex (Mosaic and Nutrien’s export marketing joint venture) signed a six-month contract with India at a price of $422 per metric ton, well below 2022′s price of $590. While this was slightly below our outlook for a price in the mid-$400 range, it aligns with our general outlook that fertilizer prices would see cyclically high levels in 2022, but the high prices would be short-lived.

As Russia and Belarus continue to ramp up exports following the sharp decline last year after the start of the Russia-Ukraine war, we expect prices will continue to moderate over the long term, eventually falling to our midcycle forecast of $310 per metric ton in 2023 real terms. However, in the near-term, potash prices in the low- to mid-$400 range should be low enough for farmers who reduced potash purchases in 2023 to resume buying the fertilizer. This should lead to more stable prices in the remainder of the year.

We expect a similar dynamic in phosphates, where prices have fallen to the low- to mid-$600 per metric ton range for DAP, down from the highs above $1,000 in mid-2022. While we expect prices will stabilize at these levels in the near term, we continue to forecast a long-term phosphate price of $400 per metric ton in 2023 real terms. Even at our midcycle price forecasts, Mosaic should still generate solid profits, albeit lower than the peak in 2022.