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Slow Phosphate Margin Recovery To Limit Upside At Mosaic, Rating Lowered By RBC

Mosaic Co’s MOS 0.34% phosphate margins are likely to take longer to recover from their near 5-year lows, RBC Capital Markets’ Andrew D. Wong said in a report. He downgraded the rating on the company from Outperform to Sector Perform, while reducing the price target from $28 to $27.

Weak market prices for ammonia and sulphur have eroded Mosaic's input cost advantages, and the phosphate segment’s margin recovery is likely to be slower than was expected, analyst Andrew Wong mentioned. He added that although management had lowered costs and optimized operations, continued challenges in potash and phosphate fundamentals would likely limit upside.

Phosphate Segment Margins

Phosphate market fundamentals weakened through the first half of the year, resulting in phosphate processing margins hitting a near 5-year low. Wong expects the recovery to be slow on account of:

  • New capacity additions over the next 12-24 months
  • Lack of significant demand growth catalysts
  • Limited upside for Indian dealer margins

The 2016 and 2017 estimates for the phosphate segment’s gross margins have been reduced from 13 percent to 11 percent and from 17 percent to 15 percent, respectively.

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Jul 2016RBC CapitalDowngradesOutperformSector Perform
Jul 2016CitigroupMaintainsNeutral
May 2016Stifel NicolausDowngradesBuyHold

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