Mosaic Earns Double Upgrade On Sustainable Recovery In Phosphate

Mosaic Co MOS’s stock cycle is rising from a trough, and with consensus estimates not yet reflecting improvement, Bank of America Merrill Lynch sees upside to forecasts.

The Rating

Analysts Steve Byrne and Ian Bennett upgraded Mosaic from Underperform to Buy and raised their price target from $24 to $35.

The Thesis

The analysts foresee relief from the near-term negatives of recently introduced low-cost capacity, particularly as Chinese production and exports prove less threatening than expected.

“We are now willing to underwrite a multi-year recovery in phosphate with global utilization rates bottoming in 2018,” the analysts wrote in a note, anticipating mid-cycle earnings power of $3 over the next two to three years.

The reduction in Asia, which could accelerate under Chinese environmental initiatives through 2019, is seen to more than offset freight issues in Brazil and capacity rampings in Morocco and Saudi Arabia.

“We view the potential for declines in potash prices from new entrants and the potential for reduced fertilizer demand in over-consuming regions as the biggest risks to our thesis,” the note said.

Price Action

At time of publication, shares were trading up 2.6 percent at $29.13.

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