The Mosaic Company MOS is benefiting from demand strength for phosphate and potash, actions to improve its cost structure and higher prices amid certain headwinds, including raw material cost inflation.
The company’s shares are down 35.8% in a year, compared with a 30% decline recorded by its industry.
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Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Aiding MOS?
The company is well-placed to gain from strong demand and prices for phosphate and potash. Higher agricultural commodity prices and attractive farm economics are driving demand for fertilizers globally. Farmer economics remains attractive in most global growing regions on strong crop demand, affordable inputs, and favorable weather.
Demand for grains and oilseeds remains high along with strong farm economics. Strong agricultural commodity pricing trends and improved farmer affordability are likely to drive demand for fertilizers in 2023. Higher prices are also likely to drive sales across the company’s phosphate and potash units.
The company, last month, noted that it expects strong agricultural commodity pricing trends to drive the recovery of demand in the fertilizers market in 2023. Mosaic also said that the demand for grains and oilseeds is high. Higher biofuel consumption, crop production and concerns over food security are expected to continue to drive elevated crop prices through this year and potentially beyond, resulting in higher global fertilizer demand during the year.
Mosaic is also taking actions to reduce costs amid a still-challenging operating environment. Its actions to improve its operating cost structure through transformation plans are expected to boost profitability. Transformational savings are also expected to drive margins in its Mosaic Fertilizantes segment.
A Few Headwinds
Mosaic faces headwinds from high prices of key raw material. Prices of sulfur and ammonia remain elevated, made worse by the uncertainties over the supply from Russia amid the war. Plant shutdowns and maintenance have also led to a tight supply of raw materials. The company is expected to face margin pressure associated higher input costs. Some impacts of input cost inflation are expected to continue in the first quarter of 2023.
Higher costs are also likely to continue to impact margins in the Mosaic Fertilizantes segment in the first quarter. Gross margin in this unit declined around 88% year over year in the fourth quarter of 2022, hut by a decline in prices that impacted distribution and production businesses. Higher input costs also impacted margins in these businesses. Pricing and cost pressure are likely to continue in the first quarter.
The Mosaic Company Price and Consensus
The Mosaic Company price-consensus-chart | The Mosaic Company Quote
Stocks to Consider
Better-ranked stocks worth considering in the basic materials space include Steel Dynamics, Inc. STLD, Olympic Steel, Inc. ZEUS and Yamana Gold Inc. AUY.
Steel Dynamics currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for STLD's current-year earnings has been revised 26.4% upward in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Steel Dynamics’ earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 11.3%, on average. STLD has gained around 21% in a year.
Olympic Steel currently sports a Zacks Rank #1. The Zacks Consensus Estimate for ZEUS's current-year earnings has been revised 60.6% upward in the past 60 days.
Olympic Steel’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 26.2%, on average. ZEUS has rallied around 39% in a year.
Yamana Gold currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for AUY’s current-year earnings has been revised 3.8% upward in the past 60 days.
Yamana Gold beat Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 22.5% on average. AUY’s shares have gained roughly 2% in the past year.
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