The Esterhazy HydroFloat Project Will Improve Production Efficiency And Capacity

Key Takeaways

• Increased phosphate and potash production could boost revenue through higher volumes and prices amidst demand recovery in key regions.
  
• Strategic investments and cost savings initiatives aim to improve profitability through enhanced efficiency, capacity, and net margins.
  
• Production disruptions, leadership transition risks, volatile potash prices, and credit issues in Brazil threaten Mosaic's revenue and earnings stability.

Catalysts

Through its subsidiaries, produces and markets concentrated phosphate and potash crop nutrients in North America and internationally.

• Mosaic expects to hit an annualized phosphate production run rate of 7.8 to 8.2 million tons by year-end, suggesting increased revenue potential from higher production volumes.
  
• Cost management progress with a $150 million annual run rate cost savings target by end of 2025 may improve net margins, enhancing overall profitability.
  
• New product launches and market expansion in Mosaic Biosciences might drive long-term revenue growth, leveraging existing infrastructure with minimal capital expenditures.
  
• Anticipated record-breaking global potash shipments driven by demand recovery, particularly in Southeast Asia, could boost revenue by increasing sales volumes and prices.
  
• Strategic investments and projects, such as the Esterhazy HydroFloat and Palmeirante blend plant, are expected to enhance production efficiency and capacity, potentially improving earnings through increased output and optimized operations.

Mosaic Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Mosaic's revenue will grow by 1.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.2% today to 5.8% in 3 years time.
• Analysts expect earnings to reach $699.4 million (and earnings per share of $2.15) by about December 2027, up from $371.2 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.1 billion in earnings, and the most bearish expecting $382 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.9x on those 2027 earnings, down from 21.8x today. This future PE is lower than the current PE for the US Chemicals industry at 21.5x.
• Analysts expect the number of shares outstanding to grow by 0.77% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.47%, as per the Simply Wall St company report.

Mosaic Future Earnings Per Share Growth

Risks

• Hurricane impacts and electrical issues at key operations could continue to disrupt production, negatively affecting both revenue and earnings.
  
• The retirement of Clint Freeland, the CFO, poses a potential risk related to leadership transition and financial strategy continuity, potentially impacting earnings stability.
  
• Fluctuations in potash prices and delayed agricultural recovery in key markets like Brazil have already affected the third-quarter earnings, and similar conditions could impact future revenue and net margins.
  
• Credit issues in Brazil leading to bad debt reserves pose a risk of future credit losses, impacting net income and cash flow if further credit problems arise.
  
• The high prices of phosphate relative to affordability may reduce demand if new supply sources do not alleviate price pressures, potentially affecting future revenue and net margins.

Valuation

• The analysts have a consensus price target of $32.77 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 2027, revenues will be $12.0 billion, earnings will come to $699.4 million, and it would be trading on a PE ratio of 18.9x, assuming you use a discount rate of 7.5%.
• Given the current share price of $25.44, the analyst's price target of $32.77 is 22.4% 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.