Bear of the Day: The Mosaic Company (MOS)
The Mosaic Company is a producer and marketer of concentrated phosphate and potash for the global agriculture industry. The company was formed through the combination of fertilizer businesses including Cargill and IMC Global. Its products are processed into crop nutrients and shipped through rail, barge, and ocean-going vessels to customers in major agricultural centers.
While the company is among the four largest potash producers in the world, Mosaic faces headwinds from lower fertilizer prices. Prices of crop nutrients remain under pressure as the resumption of exports from top suppliers has led to higher supplies. Production cuts surrounding challenging potash market conditions may also affect potash volumes.
The company is exposed to higher raw material costs due to tight supply. Prices of ammonia, a key input for phosphate production, remain elevated partly due to the uncertainties over the supply from Russia amid the ongoing war. Plant closures and maintenances have also led to supply constraints.
The Zacks Rundown
Mosaic MOS, a Zacks Rank #5 (Strong Sell) stock, is a component of the Zacks Fertilizers industry group, which currently ranks in the bottom 10% out of approximately 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it has over the past year:
Image Source: Zacks Investment Research
Candidates in the bottom tiers of industries can often be intriguing short candidates. While individual stocks have the ability to outperform even when included in a lackluster industry, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.
Along with many other fertilizer stocks, MOS shares have been struggling this year while the general market returned to new heights. The stock is hitting a series of lower lows and represents a compelling short opportunity as we head deeper into the latter half of the year.
Recent Earnings Misses & Deteriorating Outlook
The agricultural company has fallen short of earnings estimates in three of the past four quarters. Earlier in August, Mosaic reported second-quarter earnings of $0.54/share, missing the $0.68/share Zacks Consensus estimate by -20.6%. The company has posted a trailing four-quarter average earnings miss of -10.17%.
Consistently falling short of earnings estimates is a recipe for underperformance, and MOS is no exception.
Mosaic has been on the receiving end of negative earnings estimate revisions as of late. Looking at the current quarter, analysts have slashed estimates by -8.96% in the past 60 days. The Q3 Zacks Consensus Estimate is now $0.61/share, reflecting negative growth of -10.3% relative to the prior year.
Image Source: Zacks Investment Research
Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.
Technical Outlook
As illustrated below, MOS stock is in a sustained downtrend. Notice how the stock has continued to meet resistance at important technical levels such as the 200-day moving average (red line). Also note how the 200-day average is sloping down – another good sign for the bears.
Image Source: StockCharts
MOS stock has experienced what is known as a “death cross,” whereby the stock’s 50-day moving average (blue line) crosses below its 200-day moving average. The stock would have to make an outsized move to the upside and show increasing earnings estimate revisions to warrant taking any long positions. Shares have fallen nearly 20% this year alone.
Final Thoughts
A deteriorating fundamental and technical backdrop show that this stock is not set to make its way to new highs anytime soon. The fact that MOS is included in one of the worst-performing industry groups provides yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock’s downtrend.
Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of MOS until the situation shows major signs of improvement.
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The Mosaic Company (MOS) : Free Stock Analysis Report