Date: 2025-08-06
Mosaic is one of the world’s largest producers of potash and phosphate fertilizers, serving farmers globally. Revenue is generated by mining phosphate rock, potash, and producing granular fertilizers sold to wholesalers, retailers, and growers.
Based on my model, the intrinsic value is calculated to be: Enterprise Value ≈ $13.77 billion and Intrinsic Value per Share ≈ $43.44.
Is the business model simple and sustainable?
Yes. Farming requires fertilizer irrespective of economic cycles. Mosaic benefits from recurring demand, although volumes and pricing are linked to agricultural commodity cycles and weather patterns.
Does the company have a durable competitive advantage (moat)?
Moderate moat:
- Scale and integration: Largest U.S. potash and phosphate producer, strong global network.
- Channel control: Proprietary logistics, blending, and distribution in multiple continents.
However, switching costs are low for customers, and competition among global producers (e.g. Nutrien, CF Industries) limits pricing power.
Who are the competitors, and how is Mosaic positioned?
Competitors include Nutrien, CF Industries, Yara, OCP Group, K+S AG, ICL Group. Mosaic stands out in the U.S. and Brazil, and has expanded via its acquisition of Brazilian fertilizer operations. It holds a leading market share and geographic diversification.
Is management competent, honest, and aligned with shareholders?
Mixed. Mosaic has pursued cost optimization, productivity gains, and strategic investments in Brazil.
However, cash flow volatility and recent hurricane disruptions (Q3 2024) impacted earnings. Leadership transition at the CFO level in 2024–25 is underway. Margins remain cyclical.
Is the stock undervalued compared to its intrinsic value?
Yes. The stock trades around $32, while GuruFocus and SimplyWallSt estimate intrinsic value based on FCF at $57–$62/share.
That represents ~40–50% upside relative to your calculated fair value of $43.44/share.
Does the company use its capital efficiently?
Partially. 5-year ROIC (~6.70%) is below ideal (>9%), but TTM ROIC improved (~10%).
Multiple acquisitions in fertilizer platforms have been moderate in scale ($454M over 5 years). Leverage is moderate (Debt/Equity ~0.39), consistent with the capital-intensive mining model.
Does the company generate strong free cash flow?
Not consistently. Recent years saw FCF collapse to a trailing $0.01/share (extremely high P/FCF of ~49×).
At times FCF peaks remain volatile, largely tied to seasonal crop cycles.
Is the balance sheet strong?
Reasonable.
- Current Ratio ~1.12 (adequate liquidity)
- Debt/Equity ~0.39 (below 0.5 threshold)
- Long-term liabilities / 5-yr FCF = 7.41× (borderline above ideal <5×)
How consistent is earnings and revenue growth?
Highly cyclical.
- 5-year average net income ~$1.53B, but TTM net income down to $368M.
- Revenue growth has slowed, and FCF is erratic.
- Price and profit respond sharply to potash/phosphate prices and volumes.
What is the margin of safety?
Based on your fair value $43.44/share, current price $32.07, margin of safety is ~25–30%, though volatility can widen this depending on cycle timing.
What are the company’s biggest risks?
- Commodity price swings (fertilizer pricing is volatile)
- Weather disruption (e.g., hurricanes impact mining operations).
- Global competition and oversupply pressures
- Regulatory risks in Brazil, U.S., and environmental compliance
- Currency exposure in international operations
Is the company diluting shareholders?
No significant dilution. Shares outstanding have declined (~17% reduction). Most capital allocation appears share repurchase or dividend-focused.
Is this company cyclical or stable? How would it perform in a recession?
Highly cyclical.
During recessions, demand for fertilizers falls, prices drop, and Mosaic’s margins compress heavily. Fiscal performance tends to be volatile in downturns.
What would this company look like in 5–10 years?
If Mosaic manages through the cycle:
- Possibly earnings stabilization from scale and cost discipline
- Modest organic growth in Brazil and North America
- Industry consolidation or vertical integration into specialty fertilizers
If agriculture remains robust, Mosaic could recover high margins and FCF.
Would I still buy this stock if the market closed for 5 years?
Yes, but only at prices at or below $40–45. At today’s price (~$32), expected returns could reach 9% or more if Mosaic achieves normalization of margins and commodity pricing.
Is the company reinvesting in value-accretive ways or returning cash efficiently?
Mostly capital returns via dividends (~$0.27B paid TTM, yield ~2.4–2.7%), and modest reinvestment in Brazil and expansion of phosphate capacity. Limited R&D, but core mines feed growth.
Why is this stock mispriced or priced correctly? What’s the market missing?
Market may be discounting Mosaic heavily due to recent free cash flow instability.
What it may be missing: cyclical recovery potential, cost improvements, and long-term fertilizer demand fundamentals driven by global food needs.
What assumptions am I making, and what would prove them wrong?
Assumptions:
- 5% normalized FCF growth, 2% terminal growth
- Modest improvement in operational leverage
- Stable commodity cycles
Falsifiers:
- Prolonged commodity oversupply
- Lower phosphate/potash price environment
- Mining disruptions or regulatory cost inflation
- Failure to manage debt or enhance margins
How does this investment fit into my portfolio strategy?
Mosaic suits counter-cyclical or value-oriented portfolios that can tolerate cyclicality in exchange for depressed valuation and recovery potential. It complements core holdings with commodity sensitivity.
Final Recommendation: Buy (with caution)
| Metric | Value |
|---|---|
| Intrinsic Value | ~$43.44/share |
| Market Price | ~$32.07 |
| Upside Potential | ~25–30% |
| Risk Level | Moderate–High |
| Return Target | ~9%+ |
| Recommendation | According to the model, BUY if price is below $40; HOLD larger allocation through cycle. I would wait till $22 to start buying. |
In summary, if you’re willing to ride the fertilizer cycle and can endure volatility, Mosaic offers a compelling value opportunity at today’s price. If the price stays below the intrinsic fair value, the longer-term return potential remains intact.
Fertilizer is a highly cyclical. If you look at the last 5 years, we are on a fertilizer downcycle, meaning it is a great time to buy. However, if we look back at the last 15 years, which is something I do for all my investments, we are in mid-to-high cycle. This would means holding and not buying.
I believe a price below $22 is something we can expect during downcycle. Therefore, I would start purchasing shares below $22.
Disclaimer: This analysis is for informational purposes only and does not constitute investment advice. Always perform your own due diligence or consult with a financial advisor before making investment decisions.
