On Jan 3, 2015, Zacks Investment Research downgraded The Mosaic Company (MOS) to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold).
Why the Downgrade?
Share price of Mosaic has been witnessing a volatile trend over the past one month. The company is exposed to a weak pricing environment. Average selling price for potash fell roughly 15% year over year in the last reported quarter, dragging down margins for the Potash division in the process.
Per Mosaic’s third-quarter 2014 results, the company’s adjusted earnings per share of 56 cents missed the Zacks Consensus Estimate by 3 cents. Revenues rose roughly 18% year over year to $2,250.7 million on double-digit sales gains across phosphate and potash businesses, but lagged expectations. Mosaic ended the quarter with cash and cash equivalents of roughly $3 billion, down 11% year over year.
Mosaic has also witnessed downward estimate revisions since the release of its third-quarter results. The Zacks Consensus Estimate for earnings for 2014 has decreased 9.3% to $2.35 per share. Moreover, the Zacks Consensus Estimate for 2015 has declined 7.3% to $3.16 per share.
Mosaic is currently facing a challenging business environment in agriculture and the continuous negative sentiment among agriculture investors can create uncertainty in 2015. Also, agricultural commodity prices are weak.
Mosaic is also facing pricing pressure in the phosphate segment. Phosphate prices remain depressed even as costs continue to rise for raw materials, particularly for ammonia. The company has thus decided to reduce phosphate production in response to these conditions.
Moreover, the company expects to see a bumper harvest in the next season which will possibly bring prospects of lower income for growers in 2015, making them skeptic in their business.
Stocks to Consider
Better-ranked companies in the basic materials sector include PPG Industries Inc. (PPG), Air Products & Chemicals Inc. (APD) and Johnson Matthey plc (JMPLY). While PPG Industries sports a Zacks Rank #1 (Strong Buy), both Air Products and Johnson Matthey carry a Zacks Rank #2 (Buy).
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