Mosaic Co (MOS), Agrium Inc. (USA) (AGU): More Headwinds For Fertilizer Stocks

Mosaic is selling for 11 times its future earnings, and analysts’ mean target price is $84.46, implying an astonishing 56% upside. The stock has not been there since 2011, and currently there are no catalysts to pave the road to these highs. Mosaic stated that it was going to issue debt in the second half of this year, taking advantage of favorable debt market conditions. The company’s debt load is low, and it can surely afford it. Mosaic pays a dividend that yields 1.85%.

Agrium Inc. (USA) (NYSE:AGU) is cheaper than Mosaic Co (NYSE:MOS) if judged by forward P/E. It trades at a 9.39 forward P/E. Cheaper valuation could be partly explained by a higher debt load. Early in June, Agrium Inc. (USA) (NYSE:AGU) suspended plans for a fertilizer plant in the U.S. Midwest and expansion plans for a plant in Alberta. Given the current situation, the company does not need excess capacity. Analysts are optimistic with a $109.80 mean price target, but the stock will have difficulties to meet because of the current fertilizer price trends. Agrium Inc. (USA) (NYSE:AGU)’s dividend yields 2.23%.

Potash Corp./Saskatchewan (USA) (NYSE:POT) trades at a forward P/E of 12 and pays the biggest dividend, which yields 3.64%. The company has been trading in a $36 – $44 range for a long time now. Given the dividend, the stock is interesting from a long-term point of view. At the same time, Potash Corp./Saskatchewan (USA) (NYSE:POT) shares the same downside risks as the other stocks. Analysts’ mean target price is $45.98, implying a 19% upside. In my opinion, this is optimistic for the short term.

Bottom line

Despite the fact that the long-term big picture is bullish for fertilizer producers, the current environment poses downside risks. Supply is growing and puts pressure on prices. The situation in India is unclear. Mosaic stated that Chinese farmers demanded low prices and would go if the company were to lift the prices up a little bit. All in all, short term risks prevail.

The article More Headwinds For Fertilizer Stocks originally appeared on Fool.com and is written by Vladimir Zernov.

Vladimir Zernov has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Vladimir is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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