Agrium Inc. (AGU) has received approval from the TSX to buy back up to 5% of its currently issued and outstanding common shares in the next 12 months.
CreditSights said the fertilizer producer’s healthy free cash flow and cash available on its balance sheet should allow it to fund the repurchase plan without having to issue additional debt.
The 7.9 million shares equate to a cost of $434-million at Wednesday’s closing price of $54.90 in New York.
The fixed income research firm told clients:
Despite continued strong earnings outlook in the foreseeable future, high-beta fertilizer names have been punished recently in the equity markets.
They noted that Agrium shares have plummeted more than 50% from its June 23 high.
Friday, October 3, 2008
Thursday, October 2, 2008
Monsanto raises its fiscal 2008 guidance
Monsanto raises guidance in hopes of allaying investor fears; Cites strong herbicide sales
ST. LOUIS (AP) -- Monsanto Co. raised its year-end earnings forecast Thursday, hoping to calm nervous investors after the agricultural products company's stock price fell this week.
Monsanto now expects net income of $3.64 per share for fiscal 2008, up from a previous range of $3.58 to $3.60. On average, analysts polled by Thomson Reuters had expected earnings per share of $3.57.
Monsanto is set to announce its earnings results next Wednesday, but the company put out its new guidance Thursday after the company's traded sharply lower. The shares closed down $15.83 or 16 percent at $82.01 amid a broader decline in the market.
"We know there is turmoil out there, but we want to make sure people know we're confident in our business," Vice President of International Operations Kerry Preete said in phone interview.
Monsanto wanted particularly to allay fears that high phosphorous prices might hurt its business. Prices for that key fertilizer have skyrocketed over the last year, and the material is an ingredient in the company's Roundup fertilizer.
Preete said phosphorous only accounts for 10 percent of the company's cost to make Roundup. Monsanto expects solid Roundup sales as global demand for the herbicide increases.
Monsanto said it expects full-year gross profit from Roundup in 2009 between $2.3 billion and $2.4 billion. It had previously estimated profit in the range of $2.1 billion to $2.2 billion. The company increased its 2012 Roundup gross-profit target to $1.9 billion from $1.8 billion.
ST. LOUIS (AP) -- Monsanto Co. raised its year-end earnings forecast Thursday, hoping to calm nervous investors after the agricultural products company's stock price fell this week.
Monsanto now expects net income of $3.64 per share for fiscal 2008, up from a previous range of $3.58 to $3.60. On average, analysts polled by Thomson Reuters had expected earnings per share of $3.57.
Monsanto is set to announce its earnings results next Wednesday, but the company put out its new guidance Thursday after the company's traded sharply lower. The shares closed down $15.83 or 16 percent at $82.01 amid a broader decline in the market.
"We know there is turmoil out there, but we want to make sure people know we're confident in our business," Vice President of International Operations Kerry Preete said in phone interview.
Monsanto wanted particularly to allay fears that high phosphorous prices might hurt its business. Prices for that key fertilizer have skyrocketed over the last year, and the material is an ingredient in the company's Roundup fertilizer.
Preete said phosphorous only accounts for 10 percent of the company's cost to make Roundup. Monsanto expects solid Roundup sales as global demand for the herbicide increases.
Monsanto said it expects full-year gross profit from Roundup in 2009 between $2.3 billion and $2.4 billion. It had previously estimated profit in the range of $2.1 billion to $2.2 billion. The company increased its 2012 Roundup gross-profit target to $1.9 billion from $1.8 billion.
Agriculture Stocks Wither
Fertilizer and agriculture companies' shares plunged Thursday as fears grew that a weakening global economy will eat away at demand for commodities and that the credit crunch will prevent farmers from buying the equipment they need to survive. Railroad companies suffered as well on concern that commodities shipments will decline.
A negative earnings report late Wednesday by fertilizer maker Mosaic set a bad tone going into Thursday trading.
Shares of Mosaic (nyse: MOS - news - people ) lost $27.86, or 41.3%, to close at $39.65, and CF Industries Holdings (nyse: CF - news - people ) shed $30.64, or 34.6%, to $58.00. Potash (nyse: POT - news - people )'s stock lost $34.53, or 27.0%, to $93.51, and Agrium (nyse: AGU - news - people ) was down by $13.29, or 24.2%, at $41.61. Merrill Lynch downgraded the sector to "underperform" from "buy."
Despite nearly tripled profits at Mosaic, earnings in the company's first 2009 quarter missed expectations and investors were disappointed by the company's plan to cut phosphate production by 500,000 to 1.0 million tons to balance high inventory levels. The company's potash business meanwhile, experienced robust demand, helped by strikes at mines operated by rival Potash. In August, Mosaic said potash inventories hit record lows.
Late Wednesday, Mosaic said earnings in the three months through Aug. 31 nearly tripled, to $1.2 billion, or $2.65 a share, from $305.5 million, or 69 cents a share, a year ago. Gains from foreign exchange effects amounted to $86.7 million, or 13 cents a share, compared with last year's loss of $19.4 million, or 3 cents a share. The company said gains from increased selling prices were offset by higher raw material costs and taxes . Sales more than doubled, to $4.3 billion, from $2.0 billion in the prior year. Analysts expected earnings of $2.94 a share and sales of $4.1 billion.
Citi Analyst Brian Yu said Mosaic was falling on the company's reduced guidance on year-end phosphate sales volume, which it now expects to be in the range of 8.0 million to 9.0 million metric tons, down from 9.0 million to 9.4 million. Yu said he expects fertilizer demand to remain strong given current concerns about global grain and oilseed supply levels and maintained a buy rating on Mosaic.
Merrill Lynch analyst Don Carson said that falling prices for phosphate and nitrogen and a smaller-than-expected rise in potash, a potassium-based crop nutrient, are causing ``considerable uncertainty'' for Potash earnings in the near term. Swiss seed maker Syngenta (nyse: SYT - news - people ) also felt the pressure as declining commodity prices hurt agricultural chemical makers.
However, Potash reaffirmed its plans for expansion on Thursday, and argued that fertilizer stocks had been hit by investor “overreaction” given the financial crisis. The company said the sector is well-positioned for the long term.
Bunge (nyse: BG - news - people ), the biggest seller of fertilizer in South America, and Monsanto (nyse: MON - news - people ), the world's biggest seed producer, tumbled as well. Carson said profit gains from Roundup herbicide, a Monsanto product, will slow. Bunge shares plummeted 20.4%, or $12.84, to $50.16 at the close, while Syngenta sank 9.4%, or $3.78, to $36.61. Monsanto lost 16.2%, or $15.83, to $82.01.
Meanwhile, U.S. Agriculture Secretary Ed Schafer said the credit crunch may impact agricultural production next year. Schafer warned that the costs of farming have soared and without loans it may be difficult to pay for operations. According to the U.S. Department of Agriculture, farm expenses are expected to rise 16.0%, to $294.8 billion this year. (See " Farmer Mac's Amber Waves Of Pain.")
Commodities fared poorly on Thursday. December corn fell 28-1/2 cents on the Chicago Board of Trade, or 5.9%, to $4.55-1/2 a bushel--a nine-month low. November soybeans were down 55 cents, or 5%, at $9.98, below the psychologically important $10.00 level. December wheat fell 32-3/4 cents, or 4.9%, to $6.36-3/4 a bushel, because of ample global supplies this year.
The railroads tumbled on Thursday as worries about decreased demand for commodities, slowing factory orders and increases in jobless claims rocked investors. CSX fell $5.85 or 11.0%, to $47.21, while Canadian National fell $3.13 or 6.6%, to $44.58. Canadian Pacific fell $4.08 or 7.8%, to $48.36, Kansas City Southern slid $7.76 or 17.8%, to $35.85. Norfolk Southern fell $8.40 or 12.9%, to $56.64, Union Pacific fell $7.34 or 10.6%, to $62.10, and Burlington Northern fell $6.49 or 7.3%, to $83.00.
A negative earnings report late Wednesday by fertilizer maker Mosaic set a bad tone going into Thursday trading.
Shares of Mosaic (nyse: MOS - news - people ) lost $27.86, or 41.3%, to close at $39.65, and CF Industries Holdings (nyse: CF - news - people ) shed $30.64, or 34.6%, to $58.00. Potash (nyse: POT - news - people )'s stock lost $34.53, or 27.0%, to $93.51, and Agrium (nyse: AGU - news - people ) was down by $13.29, or 24.2%, at $41.61. Merrill Lynch downgraded the sector to "underperform" from "buy."
Despite nearly tripled profits at Mosaic, earnings in the company's first 2009 quarter missed expectations and investors were disappointed by the company's plan to cut phosphate production by 500,000 to 1.0 million tons to balance high inventory levels. The company's potash business meanwhile, experienced robust demand, helped by strikes at mines operated by rival Potash. In August, Mosaic said potash inventories hit record lows.
Late Wednesday, Mosaic said earnings in the three months through Aug. 31 nearly tripled, to $1.2 billion, or $2.65 a share, from $305.5 million, or 69 cents a share, a year ago. Gains from foreign exchange effects amounted to $86.7 million, or 13 cents a share, compared with last year's loss of $19.4 million, or 3 cents a share. The company said gains from increased selling prices were offset by higher raw material costs and taxes . Sales more than doubled, to $4.3 billion, from $2.0 billion in the prior year. Analysts expected earnings of $2.94 a share and sales of $4.1 billion.
Citi Analyst Brian Yu said Mosaic was falling on the company's reduced guidance on year-end phosphate sales volume, which it now expects to be in the range of 8.0 million to 9.0 million metric tons, down from 9.0 million to 9.4 million. Yu said he expects fertilizer demand to remain strong given current concerns about global grain and oilseed supply levels and maintained a buy rating on Mosaic.
Merrill Lynch analyst Don Carson said that falling prices for phosphate and nitrogen and a smaller-than-expected rise in potash, a potassium-based crop nutrient, are causing ``considerable uncertainty'' for Potash earnings in the near term. Swiss seed maker Syngenta (nyse: SYT - news - people ) also felt the pressure as declining commodity prices hurt agricultural chemical makers.
However, Potash reaffirmed its plans for expansion on Thursday, and argued that fertilizer stocks had been hit by investor “overreaction” given the financial crisis. The company said the sector is well-positioned for the long term.
Bunge (nyse: BG - news - people ), the biggest seller of fertilizer in South America, and Monsanto (nyse: MON - news - people ), the world's biggest seed producer, tumbled as well. Carson said profit gains from Roundup herbicide, a Monsanto product, will slow. Bunge shares plummeted 20.4%, or $12.84, to $50.16 at the close, while Syngenta sank 9.4%, or $3.78, to $36.61. Monsanto lost 16.2%, or $15.83, to $82.01.
Meanwhile, U.S. Agriculture Secretary Ed Schafer said the credit crunch may impact agricultural production next year. Schafer warned that the costs of farming have soared and without loans it may be difficult to pay for operations. According to the U.S. Department of Agriculture, farm expenses are expected to rise 16.0%, to $294.8 billion this year. (See " Farmer Mac's Amber Waves Of Pain.")
Commodities fared poorly on Thursday. December corn fell 28-1/2 cents on the Chicago Board of Trade, or 5.9%, to $4.55-1/2 a bushel--a nine-month low. November soybeans were down 55 cents, or 5%, at $9.98, below the psychologically important $10.00 level. December wheat fell 32-3/4 cents, or 4.9%, to $6.36-3/4 a bushel, because of ample global supplies this year.
The railroads tumbled on Thursday as worries about decreased demand for commodities, slowing factory orders and increases in jobless claims rocked investors. CSX fell $5.85 or 11.0%, to $47.21, while Canadian National fell $3.13 or 6.6%, to $44.58. Canadian Pacific fell $4.08 or 7.8%, to $48.36, Kansas City Southern slid $7.76 or 17.8%, to $35.85. Norfolk Southern fell $8.40 or 12.9%, to $56.64, Union Pacific fell $7.34 or 10.6%, to $62.10, and Burlington Northern fell $6.49 or 7.3%, to $83.00.
Mosaic Falling to Pieces
Mosaic (NYSE: MOS - News) is on a free fall today after the company missed analysts' first quarter estimate and cut its phosphate production target. The stock is down 34.67% and trading at $44.55. It's been the biggest intra-day decline for the fertilizer giant in the last four years.
Bloomberg reported that Mosaic's per-share profit was $2.83 in the three months ended August 31. Analysts had expected per-share profit excluding one-time items of $2.94.
The management also said it will cut down on phosphate production by 500,000 to 1 million tons because of an ever-lengthening phosphate inventories.
Bloomberg reported that Mosaic's per-share profit was $2.83 in the three months ended August 31. Analysts had expected per-share profit excluding one-time items of $2.94.
The management also said it will cut down on phosphate production by 500,000 to 1 million tons because of an ever-lengthening phosphate inventories.
FERTILIZER PRICES SPARK WORRIES ABOUT AG BUSINESS
Consider the agricultural products sector as one of the choice morality tales on Wall Street, circa 2008. On one hand, profits continue to expand at prodigious rates, as feverish demand for products like fertilizer drive sales by triple-digit levels. However, prices flattened out earlier this year, as customers - that is, farmers - balked at spiraling costs. The twisted hand of the credit market also played a role, as farmers found access to capital increasingly difficult to come by as the growing season matured. Meanwhile, hedge funds and momentum players continued to bet aggressively on the sector, even amidst signs that fundamentals might have peaked just after mid-year - in large measure because few other sectors worked, or worked as spectacularly, as the ag business had in the first half of the year. As company profits continued to swell, those investors refused to disabuse themselves of the idea that trees grow to the sky. But as the poet wrote, ”Turn, turn, turn.” Most of the names in the group have fallen in a fashion as spectacular as the rallies that made them such darlings earlier this year. The performance of Mosiac (MOS) garnered special notice, plunging 73% from the June highs, including Thursday’s ripe 35% scrum. The decline came after it recorded quarterly results that showed profits tripled while sales in the period doubled. But after five quarters of recording profits that beat estimates by 10% or more, Mosiac actually fell short of the lofty forecasts. Worse, it said that inventories have built for products like phosphate, which represented more than half its sales. That’s led to pressure on pricing, and prompted the company to announce plans to cut back on production. In short, fundamentals have peaked. Even though almost all the names in the sector have suffered egregious haircuts - Monsanto (MON) has lost some $35 billion of market capitalization since June - it’s difficult for analysts to project the recovery in production and pricing. Ergo, shares of Potash (POT) followed Mosiac lower, down 20% on the session. Terra Industries (TRA) - hit just a week ago by worries about its exposure to urea, a prime chemical component in some fertilizer products - fell another 25% Thursday, sinking to a low for the year. The fallout has spread to other areas of the agribusiness empire, such as soybean producer Bunge (BG), which lost 20%, and equipment maker Deere (DE). Both have traded at new lows for the year.
Stubborn Ag Bulls Emerge Covered in Fertilizer
The bubble has burst for fertilizer and agricultural chemical stocks, with former stock-market star Mosaic off by a third Thursday and others hard on their heels, like Monsanto and Potash Corp. of Saskatchewan as excess supply and reduced demand slow the pattern of price increases on farm chemicals.
Mosaic, one of the two largest fertilizer makers by sales, recently fell 32% to $45.89 — and has fallen by more than $117, or over two-thirds, since June 18, even after reporting robust fiscal first-quarter earnings growth after the bell Wednesday. Mosaic’s warning that phosphate, a particular grade of fertilizer, was leveling off in price sent hedge funds and Wall Street brokers fleeing from the sector, where consistent price increases had resulted in great expectations.
The action in fertilizer stocks in particular is comparable to the technology bust of 2000 to 2001, when profitable companies like Microsoft and Intel suffered from speculators’ realization that the sky was not the limit. Farmers could not bear the weight of ever-increasing costs forever, especially as grain prices fell by half and credit tightened. And the popularity of the momentum “ag trade” with hedge funds and day traders has led to a decline similar in magnitude and pace to the tech bust.
One long-term skeptic, Citigroup chief U.S. equity strategist Tobias Levkovich, said the bullish argument on agricultural stocks never held much weight. “One of the arguments is that there’s no supply,” Mr. Levkovich said. “When demand falls off, guess what? There’s a little more supply.”
Another giant fertilizer maker, Potash of Saskatchewan, which Goldman Sachs said was one of the top 20 most popular names in hedge-fund portfolios as of the end of June, was down 22% recently at $100.42, less than half its summer peak over $240. Another peer, Bunge is off 62% from its peak, more than such beaten-down financials as Citigroup. Among other stocks exposed to farmers, seed-and-weedkiller processor Monsanto fell 17% to $81.23, off 43% from its peak. Tractor maker Deere & Co. fell 13% to $40.15, and is 58% from its peak.
Mosaic said fiscal first-quarter earnings almost quadrupled, but the immediate issue for the market was the price of phosphate, a grade of fertilizer that contributed more than half its quarterly revenue of $4.32 billion. In response to an “excess” of phosphate on the market, the leading producer of that fertilizer reduced its production, and, as a result, its projection for sales volume of phosphate for the year. Also, it expects the average price of phosphate to be around $1,020 to $1,080 a tonne, more or less level with $1,013 this quarter, after a string
Agriculture stocks were darlings when grain prices doubled and, in some cases, tripled earlier this year. Corn, which was nearly $8 a bushel at the end of June is now at $4.50, and falling again Thursday. Similar drops have occurred in wheat and soybeans. The argument that “everyone needs to eat and they’re not making land any more” has soured on the banks and funds that spread it.
Merrill Lynch cut its rating on the agricultural chemicals sector, including Mosaic and Monsanto, because of signs of weakness in phosphate, and potash, another major grade of fertilizer. Merrill also warned “a global recession, particularly in Asia, represents a risk to corn prices, as it could lead to reduced demand growth.”
Mosaic, one of the two largest fertilizer makers by sales, recently fell 32% to $45.89 — and has fallen by more than $117, or over two-thirds, since June 18, even after reporting robust fiscal first-quarter earnings growth after the bell Wednesday. Mosaic’s warning that phosphate, a particular grade of fertilizer, was leveling off in price sent hedge funds and Wall Street brokers fleeing from the sector, where consistent price increases had resulted in great expectations.
The action in fertilizer stocks in particular is comparable to the technology bust of 2000 to 2001, when profitable companies like Microsoft and Intel suffered from speculators’ realization that the sky was not the limit. Farmers could not bear the weight of ever-increasing costs forever, especially as grain prices fell by half and credit tightened. And the popularity of the momentum “ag trade” with hedge funds and day traders has led to a decline similar in magnitude and pace to the tech bust.
One long-term skeptic, Citigroup chief U.S. equity strategist Tobias Levkovich, said the bullish argument on agricultural stocks never held much weight. “One of the arguments is that there’s no supply,” Mr. Levkovich said. “When demand falls off, guess what? There’s a little more supply.”
Another giant fertilizer maker, Potash of Saskatchewan, which Goldman Sachs said was one of the top 20 most popular names in hedge-fund portfolios as of the end of June, was down 22% recently at $100.42, less than half its summer peak over $240. Another peer, Bunge is off 62% from its peak, more than such beaten-down financials as Citigroup. Among other stocks exposed to farmers, seed-and-weedkiller processor Monsanto fell 17% to $81.23, off 43% from its peak. Tractor maker Deere & Co. fell 13% to $40.15, and is 58% from its peak.
Mosaic said fiscal first-quarter earnings almost quadrupled, but the immediate issue for the market was the price of phosphate, a grade of fertilizer that contributed more than half its quarterly revenue of $4.32 billion. In response to an “excess” of phosphate on the market, the leading producer of that fertilizer reduced its production, and, as a result, its projection for sales volume of phosphate for the year. Also, it expects the average price of phosphate to be around $1,020 to $1,080 a tonne, more or less level with $1,013 this quarter, after a string
Agriculture stocks were darlings when grain prices doubled and, in some cases, tripled earlier this year. Corn, which was nearly $8 a bushel at the end of June is now at $4.50, and falling again Thursday. Similar drops have occurred in wheat and soybeans. The argument that “everyone needs to eat and they’re not making land any more” has soured on the banks and funds that spread it.
Merrill Lynch cut its rating on the agricultural chemicals sector, including Mosaic and Monsanto, because of signs of weakness in phosphate, and potash, another major grade of fertilizer. Merrill also warned “a global recession, particularly in Asia, represents a risk to corn prices, as it could lead to reduced demand growth.”
Tuesday, September 30, 2008
Trying to Defend Mosaic
I did a very shoddy back of envelope analysis yesterday on Mosaic (MOS) in terms of cash flow and the ability to completely buy back all its shares ...
Only 68 more points down for Mosaic before it gets to zero. I think down from 6x earnings to 5, do we hear 4? Looking at their balance sheet last quarter they had $2 Billion in cash/equivalents versus $1.6B in debt - so net $400M. Their cash flow was $1 Billion in 1 quarter alone. With realized prices higher this past quarter than the previous they should generate even more than the $1 B in cash last quarter. This will allow them to reduce their debt significantly and be somewhere around $1.5B cash net of debt. And add at least $1B every quarter after for quite a long time. With a $30B market cap starting in 2009 they should be able to generate $5B in cash a year which in theory means they can buy back 1/6th of the company every year, and by 2015 be private ;)
See, unlike some companies losing 50% of value in one quarter, others actually have tremendous stories and huge cash flow - even if fertilizer prices drop 25% from here the cash flow will be immense. It has not mattered as hedge funds who are levered seem to sell at any price due to redemptions, but if this continues, either buyouts will happen or the companies will declare huge dividends and/or take themselves private. At some point valuation does matter again - there are real businesses out there - these are not just stock symbols for hedge funds to trade in manic nature.
It looks like an analyst agrees with me today (or is an avid blog reader). I keep saying some of these valuations are absurd, but the stocks just keep going down - it is truly amazing. I am now wondering if these companies will soon begin to trade lower then their cash on hand.
Shares of Mosaic Co., the world's largest phosphate producer, jumped Tuesday, a day after a sharp selloff that left analysts relatively upbeat on the company's share price. The stock has lost about half its value since mid June.
On Tuesday, analysts cited the Plymouth, Minn.-based company's attractive valuation. Soleil Securities analyst Mark Gulley estimates that Mosaic generates a robust free cash flow yield of about 16 percent. Free cash flow, or operating cash flow minus capital expenditures, measures a company's ability to generate cash and reward owners. It also is more difficult to manipulate than net income.
Gulley also said that with shares trading at three times the company's earnings before income, taxes, depreciation and amortization, a buyout of the company could be paid for in three years.
Citi Investment Research analyst Brian Yu reiterated his "Buy" rating on the shares and his "positive long-term position on the North American fertilizer market."
I don't have a copy of the report but I am wondering if the statement above means that, if a company bought Mosaic, the cash flow would literally pay for the entire bill in 3 years? Not sure.
Either way, in this new environment cash is king, so despite the relentless selling, we want companies that generate cash like mad - which the fertilizer companies will at this price of their products, or 20-40% lower. Again potash (the nutrient) has not budged one iota (yes, the other two nutrients show some signs of weakening, as some readers have pointed out - but not dropping 50-60% like the stock price).
Again, it is all relative. Much like people are running away from global growth stocks since their growth rates are falling from 60% year over year to potentially 20-30% year over year - that's still not all bad. Especially when they are running into stocks shrinking 15% a year, hoping to once again grow 10% a year.
But that's logic, and we don't use that around here anymore. I will look forward to tomorrow's earnings report and have hopes the company will take steps to defend its stock. Obviously the chart is a disaster and people will be shorting once it rebounds to a resistance level (and true to form we'll have to sell assuming the worst once we hit those levels - since the worst has come to fruition over and over since July 1)
Only 68 more points down for Mosaic before it gets to zero. I think down from 6x earnings to 5, do we hear 4? Looking at their balance sheet last quarter they had $2 Billion in cash/equivalents versus $1.6B in debt - so net $400M. Their cash flow was $1 Billion in 1 quarter alone. With realized prices higher this past quarter than the previous they should generate even more than the $1 B in cash last quarter. This will allow them to reduce their debt significantly and be somewhere around $1.5B cash net of debt. And add at least $1B every quarter after for quite a long time. With a $30B market cap starting in 2009 they should be able to generate $5B in cash a year which in theory means they can buy back 1/6th of the company every year, and by 2015 be private ;)
See, unlike some companies losing 50% of value in one quarter, others actually have tremendous stories and huge cash flow - even if fertilizer prices drop 25% from here the cash flow will be immense. It has not mattered as hedge funds who are levered seem to sell at any price due to redemptions, but if this continues, either buyouts will happen or the companies will declare huge dividends and/or take themselves private. At some point valuation does matter again - there are real businesses out there - these are not just stock symbols for hedge funds to trade in manic nature.
It looks like an analyst agrees with me today (or is an avid blog reader). I keep saying some of these valuations are absurd, but the stocks just keep going down - it is truly amazing. I am now wondering if these companies will soon begin to trade lower then their cash on hand.
Shares of Mosaic Co., the world's largest phosphate producer, jumped Tuesday, a day after a sharp selloff that left analysts relatively upbeat on the company's share price. The stock has lost about half its value since mid June.
On Tuesday, analysts cited the Plymouth, Minn.-based company's attractive valuation. Soleil Securities analyst Mark Gulley estimates that Mosaic generates a robust free cash flow yield of about 16 percent. Free cash flow, or operating cash flow minus capital expenditures, measures a company's ability to generate cash and reward owners. It also is more difficult to manipulate than net income.
Gulley also said that with shares trading at three times the company's earnings before income, taxes, depreciation and amortization, a buyout of the company could be paid for in three years.
Citi Investment Research analyst Brian Yu reiterated his "Buy" rating on the shares and his "positive long-term position on the North American fertilizer market."
I don't have a copy of the report but I am wondering if the statement above means that, if a company bought Mosaic, the cash flow would literally pay for the entire bill in 3 years? Not sure.
Either way, in this new environment cash is king, so despite the relentless selling, we want companies that generate cash like mad - which the fertilizer companies will at this price of their products, or 20-40% lower. Again potash (the nutrient) has not budged one iota (yes, the other two nutrients show some signs of weakening, as some readers have pointed out - but not dropping 50-60% like the stock price).
Again, it is all relative. Much like people are running away from global growth stocks since their growth rates are falling from 60% year over year to potentially 20-30% year over year - that's still not all bad. Especially when they are running into stocks shrinking 15% a year, hoping to once again grow 10% a year.
But that's logic, and we don't use that around here anymore. I will look forward to tomorrow's earnings report and have hopes the company will take steps to defend its stock. Obviously the chart is a disaster and people will be shorting once it rebounds to a resistance level (and true to form we'll have to sell assuming the worst once we hit those levels - since the worst has come to fruition over and over since July 1)
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