JPMorgan Turns Bullish On Mosaic Co. Thanks To Higher Commodity Prices

Mosaic Co MOS, a producer and marketer of concentrated phosphate and potash crop nutrients, stands to benefit from rising commodity costs that create a favorable risk-to-reward profile, according to JPMorgan.

The Analyst

JPMorgan's Jeffrey Zekauskas upgraded The Mosaic Company's stock rating from Neutral to Overweight with a price target boosted from $26 to $30.

The Thesis

Mosaic's decision to lower its phosphate production in the U.S. through the idling of its plants comes at a time when India, a large phosphate importer, is sitting on low inventory levels, Zekauskas said in the upgrade note. China appears to have some sort of phosphate export issue, as export volume in the fourth quarter of 2017 was lower by 25 percent, the analyst said. At current rates, total annual production could fall by as much as 3 million tons.

These three factors are creating a "positive price dynamic" that bodes well for Mosaic's outlook, Zekauskas said. A $50/ton margin and price change in phosphate translates to an incremental $1 per share in earnings, the analyst said. Mosaic's free cash flow generation should increase accordingly from 3.6 percent for 2018 to 6.1 percent of its share price for 2019, he said. 

The analyst's new bullish stance is a direct result of the opportunity ahead, as higher phosphate prices should result in the company earning $1.50 per share in 2018 against a prior estimate of $1.40 per share and $1.85 in 2019 versus a prior estimate of $1.80.

Price Action

Shares of Mosaic Co were trading higher by 3.70 percent in the Wednesday morning session. 

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