Mosaic (MOS) Price Target Cut On Nutrient Price Drop - UBS

UBS analyst, John Roberts, cut his target price on Mosaic (NYSE: MOS) as lower nutrient prices reduce 2016 EPS. However, the longer term picture is better with a JV coming online that should be the low cost finished phosphates producer. No change to Buy rating but the PT is reduced on a lower multiple.

While nutrient volumes should remain fairly similar with 2015, he cut 2016 EPS from $2.89 to $1.90 to reflect the lower nutrient prices and ongoing crop market challenges.

Near-term headwinds will reduce near-term EPS, but a return to EPS growth in 2017 is likely based on stabilizing farmer economics, and the fact that nutrient pricing has dropped below cash costs for higher cost competitors.

POT & AGU have already reported and highlighted expected stabilization in potash demand. MOS expects phosphate operating rates to improve to 80% in 2016 from 76% in 2015, reflecting capacity curtailments (which will curtail profit margin in Q1), but also position 2017 for continued improvement. Potash demand guidance is roughly flat for FY16 compared to FY15 but prices will be lower.

MOS remains well-positioned to grow its earnings over the next several years even in a weaker fertilizer price environment. In phosphate, gross margin growth will be driven by lower ammonia costs, higher MicroEssentials sales, and the ramp-up of the Ma'aden Saudi JV. When completed the Ma'aden JV is expected to be the lowest cost producer of finished phosphates globally. The MicroEssentials expansion, which should be completed by the end of 2016, is expected to add an incremental 1.2 million tonnes (to 3.5 million tonnes). MOS's potash expansion at the Esterhazy K3 site which is progressing on time and is expected to reduce on-going production costs. In addition, MOS has stated repurchasing shares at the bottom of the cycle is a priority.

No change to Buy rating but the PT target is reduced to $28 from $40 on a reduced multiple.

For an analyst ratings summary and ratings history on Mosaic click here. For more ratings news on Mosaic click here.

Shares of Mosaic closed at $24.75 yesterday.

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