Reducing Mosaic FVE to $40 on Lower Near-Term Outlook

After updating our Mosaic MOS model to incorporate the company’s fourth-quarter earnings, we reduce our fair value estimate to $40 per share from $44. The reduction is driven by our outlook for lower phosphate prices and reduced Mosaic Fertilizantes segment profits in 2023 versus our previous forecast. Our no-moat rating is unchanged. At current prices, we view Mosaic shares as overvalued, with the stock trading more than 25% above our updated fair value estimate.

As one of the largest fertilizer producers globally, Mosaic benefited from fertilizer prices hitting all-time highs in 2022 due to the fertilizer supply shocks that came from the Russia-Ukraine conflict—namely lower exports of fertilizer and natural gas from Russia—and China’s reduced exports. However, higher prices and poor weather that reduced planted acres led to lower fertilizer demand. In turn, as supply returned to the market, prices quickly fell from cyclically high levels.

In potash, we expect contract prices between Canpotex (Mosaic and Nutrien’s potash export joint venture) and China and India, which typically inform the rest of the global market will fall from $590 per metric ton in 2022. While a contract price has not yet been set, we wouldn’t be surprised to see a decline below $500 per metric ton for 2023. This should lead to lower potash profits for Mosaic. Longer term, we forecast potash prices of $310 per metric ton in 2023 real terms, resulting in profits falling to reflect midcycle levels.

Similarly, in phosphates, we forecast prices will continue to fall throughout 2023 as greater exports from Russia and China bring the market closer to balance. Based on World Bank data, phosphate prices have fallen 34% since hitting a cyclical high during the second quarter of 2022. Longer term, we forecast phosphate prices of $400 per metric ton in 2023 real terms, leading to lower profits for Mosaic in their phosphate segment as well.