The world’s leading producer and marketer of concentrated phosphate and potash crop nutrients, The Mosaic Company (MOS), which is headquartered in Plymouth, Minn.,recently reported impressive third-quarter earnings results, with a 44% year-over-year increase in revenues to $3.42 billion. Also, the company raised its 2022 annual dividend target by 50% to $0.45 per share. And it strengthened its balance sheet by retiring $450 million of long-term debt in August.

However, the stock has lost 6.6% in price over the past month and is currently trading 12.8% below its 52-week high of $43.24, which it hit on October 20, 2021. 

In the fourth quarter, its raw material costs per ton are expected to be $5 - $10 higher than in the third quarter. Furthermore, inflationary pressures on production costs and supply chain constraints make the company’s near-term outlook uncertain.

Here is what could influence MOS' performance in the coming months:

Reasonable Valuation

In terms of forward non-GAAP P/E, MOS’ 7.47x is 51.7% lower than the 15.46x industry average. Likewise, its 6.59x forward EV/EBIT  is 49.1% lower than the 12.92x industry average. And the stock’s 1.28x and 4.95x respective forward P/B and EV/EBITDA are lower than the 2.40x and 7.81x industry averages.

Lower-Than-Industry Profitability

In terms of trailing-12-month gross profit margin, MOS’s 22.72% is 25.2% lower than the 30.35% industry average. And its  4.46% trailing-12-month levered FCF margin is 34.4% lower than the 6.80% industry average. Furthermore,  the stock’s 0.55% trailing-12-month asset turnover ratio is 21.9% lower than the 0.70% industry average.

Consensus Price Target Indicates Upside

Closing yesterday’s trading session at $37.72, the average price target represents a potential 20% upside. The price targets range from a low of $37 to a high of $55.

POWR Ratings Don’t Indicate Enough Upside

MOS has an overall C rating, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. MOS has a C grade for Stability, which is consistent with its 1.76 beta.

MOS also has a C grade for Growth and Sentiment. This is justified because analysts expect its EPS to decline at a 15.1% rate per annum over the next five years.

In addition, the stock has a C grade for Quality, which is in sync with its lower-than-industry profitability ratios.

MOS is ranked #13 out of 31 stocks in the Agriculture industry. Click here to access MOS’ ratings for Momentum and Value as well.

Bottom Line

Even though MOS reported impressive second-quarter earnings results, its near-term prospects seem uncertain due to  high inflation and supply chain problems. So, we think it could be wise to wait for a better entry point in the stock.

How Does Mosaic (MOS) Stack Up Against its Peers?

While MOS has an overall POWR Rating of C, one  might want to consider investing in the following Agriculture stocks with an A (Strong Buy) or B (Buy) rating: Golden Agri-Resources Ltd (GARPY), Nutrien Ltd. (NTR), and Archer-Daniels-Midland Company (ADM).

Note that NTR is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.

MOS shares were trading at $37.20 per share on Tuesday afternoon, down $0.52 (-1.38%). Year-to-date, MOS has gained 62.63%, versus a 26.03% rise in the benchmark S&P 500 index during the same period.

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles.

More...