Canaccord Genuity Morning Coffee on Mosaic Co. (MOS) and Potash Corp. (POT): Get Long The Potash Trade
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Price: $24.41 +4.54%
Rating Summary:
11 Buy, 20 Hold, 9 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
Rating Summary:
11 Buy, 20 Hold, 9 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Canaccord Genuity Morning Coffee on Mosaic Company (NYSE: MOS) and Potash Corp. (NYSE: POT): Get Long The Potash Trade
Mosaic reported Q3F12 results, adjusted EPS of $0.68 (which excludes a foreign exchange loss of $0.07 and a $0.03 insurance recovery), versus Canaccord Genuity Ag Analyst Keith Carpenter's estimate of $0.68 and consensus of $0.69. Potash gross margin was higher than Carpenter's expectations as lower operating costs more than offset slightly lower than expected sales volumes. Phosphate gross margin was mostly in line with expectations as slightly lower-than-expected average realized pricing was mostly offset by higher-than-expected volumes. As a result, total gross margin of $522 million was above Carpenter's estimate of $500 million. Over the past several months, Carpenter had recommended a relative nitrogen over potash trade due to his comfort with nitrogen volumes and margins (given low North American gas costs). Going forward, given investors' relative indifference since November on the potash names (expectations are not elevated), last week's China potash contract settlement (that was in line with Carpenter's view of putting a bottom into pricing and moving volumes again), and his expectation that potash volumes will increase with the U.S., Brazil and Southeast Asian markets returning as buyers over the next few months, Carpenter believes investors should begin a relative overweight reversal of his previous trade, and have Mosaic and Potash Corp. on the long side. The trade may be slightly early as investors on average will likely continue to remain without conviction on the potash producers until product begins to move in earnest onto the farm in Q2. Once the market demonstrates strengthened volumes, which Carpenter believes will occur during Q2, the market should move to an overweight position in the potash producers.
Mosaic reported Q3F12 results, adjusted EPS of $0.68 (which excludes a foreign exchange loss of $0.07 and a $0.03 insurance recovery), versus Canaccord Genuity Ag Analyst Keith Carpenter's estimate of $0.68 and consensus of $0.69. Potash gross margin was higher than Carpenter's expectations as lower operating costs more than offset slightly lower than expected sales volumes. Phosphate gross margin was mostly in line with expectations as slightly lower-than-expected average realized pricing was mostly offset by higher-than-expected volumes. As a result, total gross margin of $522 million was above Carpenter's estimate of $500 million. Over the past several months, Carpenter had recommended a relative nitrogen over potash trade due to his comfort with nitrogen volumes and margins (given low North American gas costs). Going forward, given investors' relative indifference since November on the potash names (expectations are not elevated), last week's China potash contract settlement (that was in line with Carpenter's view of putting a bottom into pricing and moving volumes again), and his expectation that potash volumes will increase with the U.S., Brazil and Southeast Asian markets returning as buyers over the next few months, Carpenter believes investors should begin a relative overweight reversal of his previous trade, and have Mosaic and Potash Corp. on the long side. The trade may be slightly early as investors on average will likely continue to remain without conviction on the potash producers until product begins to move in earnest onto the farm in Q2. Once the market demonstrates strengthened volumes, which Carpenter believes will occur during Q2, the market should move to an overweight position in the potash producers.
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