Rising Costs And Declining Markets Will Squeeze Margins Despite Tailwinds

Key Takeaways

• Structural shifts toward sustainable agriculture and stricter environmental regulations threaten demand for synthetic fertilizers and increase Mosaic’s compliance and operational costs.
  
• Mosaic’s reliance on traditional bulk fertilizers and capital-intensive assets exposes it to technological disruption and heightened profitability risks during market downturns.
  
• Expansion in high-growth markets, supply constraints, operational improvements, and innovation in biosciences position Mosaic for sustained profitability and diversified earnings.

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.

• Mosaic remains deeply exposed to long-term shifts toward regenerative agriculture and organic food systems, which could structurally reduce global demand for synthetic fertilizers, resulting in persistent revenue headwinds and increased volatility in top-line growth over the coming years.
  
• Ongoing international climate regulation and decarbonization initiatives may impose sizable costs on Mosaic’s energy-intensive operations, driving up operating expenses and compressing net margins, particularly as governments accelerate carbon pricing mechanisms and emissions standards.
  
• The company’s dependence on potash and phosphate leaves it vulnerable to technological advances in alternative crop nutrition and precision agriculture, potentially shrinking the total addressable market for bulk fertilizers and setting the stage for long-term declines in both volume and earnings stability.
  
• Mosaic’s high fixed cost base and sizable capital intensity, especially in mining and processing assets, will create significant downside risk during industry downturns or periods of oversupply, as the company will be unable to meaningfully flex cost structure, leading to substantial EBIT pressure when pricing power fades.
  
• Heightened scrutiny over water pollution and nutrient runoff is likely to drive stricter environmental controls and legal liabilities on fertilizer producers, raising compliance costs and threatening future profitability, particularly as sustainability requirements become prerequisite for access to major global supply chains.

Mosaic Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Mosaic compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Mosaic's revenue will decrease by 0.9% annually over the next 3 years.
• The bearish analysts are assuming Mosaic's profit margins will remain the same at 3.3% over the next 3 years.
• The bearish analysts expect earnings to reach $380.1 million (and earnings per share of $1.2) by about July 2028, up from $367.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 29.4x on those 2028 earnings, down from 32.1x today. This future PE is greater than the current PE for the US Chemicals industry at 23.3x.
• Analysts expect the number of shares outstanding to decline by 0.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.68%, as per the Simply Wall St company report.

Mosaic Future Earnings Per Share Growth

Risks

• Strong global population growth and rising food demand are likely to drive higher long-term fertilizer consumption, supporting Mosaic’s revenues and providing a fundamental tailwind to top-line growth across cycles.
  
• Mosaic’s successful expansion in high-growth markets such as Brazil, combined with robust market access and the launch of new blending plants, positions the company for increased market share and double-digit sales volume growth, which would benefit earnings over the long term.
  
• Structural supply constraints in both potash and phosphate markets, further tightened by growing industrial uses like lithium iron phosphate batteries in China and ongoing supply disruptions, are sustaining elevated fertilizer prices, which could uphold Mosaic’s margins and profitability.
  
• Cost reduction initiatives, operational improvements, and strategic portfolio optimization—including asset sales and investment reallocations—are expected to lower per-ton production costs and improve net margins, strengthening long-term earnings and cash flow.
  
• Mosaic’s rapidly growing Biosciences segment, featuring high-margin biological crop solutions and successful new product launches, has the potential to deliver significant incremental EBITDA and diversify profitability beyond the traditional fertilizer business.

Valuation

• The assumed bearish price target for Mosaic is $28.55, which represents two standard deviations below the consensus price target of $39.83. This valuation is based on what can be assumed as the expectations of Mosaic's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $49.0, and the most bearish reporting a price target of just $27.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $11.4 billion, earnings will come to $380.1 million, and it would be trading on a PE ratio of 29.4x, assuming you use a discount rate of 7.7%.
• Given the current share price of $37.18, the bearish analyst price target of $28.55 is 30.2% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.