Belle Plaine And Hydrofloat Project Will Expand Future Potash Production

Key Takeaways

• Operational and strategic initiatives, including cost reductions and asset reallocation, aim to enhance profit margins and returns on capital.
  
• Investments in production capacity and Mosaic Biosciences growth are poised to meet demand and significantly contribute to revenue and earnings growth.
  
• Geopolitical tensions, currency fluctuations, and operational challenges pose risks to Mosaic's cost structure, supply reliability, and investor confidence.

Catalysts

Through its subsidiaries, produces and markets concentrated phosphate and potash crop nutrients in the United States, Brazil, China, Canada, Paraguay, Argentina, Japan, Colombia, India, Australia, Peru, Mexico, Honduras, the Dominican Republic, Thailand, Indonesia, and internationally.

• Operational improvements, such as resolving electrical issues and achieving a 100% operating rate at the Belle Plaine potash mine, are expected to drive down costs and improve profit margins.
  
• The ongoing investments to increase potash production capacity, such as the Hydrofloat project, are expected to meet strong demand and boost revenue growth.
  
• The strategic focus on Brazil, including strong underlying performance and cost reductions in the Mosaic Fertilizantes segment, is set to improve net margins.
  
• Capital reallocation through shedding noncore assets and reinvesting in high-return projects is positioned to enhance returns on invested capital, positively impacting earnings.
  
• The growth of Mosaic Biosciences, which doubled its revenues and acreage in 2024 with expectations for similar growth in 2025, suggests an increase in future earnings and profit margins.

Mosaic Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mosaic's revenue will grow by 2.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.6% today to 5.3% in 3 years time.
• Analysts expect earnings to reach $621.3 million (and earnings per share of $1.93) by about March 2028, up from $174.9 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $958 million in earnings, and the most bearish expecting $366 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.7x on those 2028 earnings, down from 45.6x today. This future PE is lower than the current PE for the US Chemicals industry at 22.1x.
• Analysts expect the number of shares outstanding to decline by 1.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.96%, as per the Simply Wall St company report.

Mosaic Future Earnings Per Share Growth

Risks

• Geopolitical tensions and tariffs, particularly those impacting Canadian potash, could lead to increased costs for Mosaic's customers, potentially affecting demand and squeezing margins.
  
• Challenges in restoring U.S. phosphate production to historical levels due to past hurricanes and ongoing reliability issues may lead to increased capital expenditures and impact net margins.
  
• A significant foreign exchange loss in the fourth quarter due to currency fluctuations, specifically with the Brazilian real and Canadian dollar, adversely impacted earnings and could continue to pose risks.
  
• The uncertainty around potash supply from geopolitical regions such as China, Belarus, and Russia, as well as operational issues in countries like Laos, could lead to an unpredictable supply landscape affecting revenue potential.
  
• Investor uncertainty regarding the monetization of significant assets, such as the Ma'aden transaction, and achieving cost reductions might lead to financial unpredictability, impacting investor confidence and overall financial performance.

Valuation

• The analysts have a consensus price target of $32.038 for Mosaic based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $44.0, and the most bearish reporting a price target of just $25.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $11.8 billion, earnings will come to $621.3 million, and it would be trading on a PE ratio of 19.7x, assuming you use a discount rate of 8.0%.
  
• Given the current share price of $25.14, the analyst price target of $32.04 is 21.5% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.