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Overnight News - Fundamentals in Potash Improving

  1. Freighter32

    1,178 Posts.
    120
    http://seekingalpha.com/article/291...should-lead-to-juicy-valuation-growth-in-2015

    "Mosaic's earnings guidance and Potash Corp.'s solid results have shown that fertilizer companies have more going for themselves than investors like to admit. Mosaic's fourth quarter results gave further proof that fundamentals in the potash business have improved a lot since the disaster quarter in 4Q 2013. Since potash companies as a group are optimistic about inventory build-ups and demand growth, price growth is a very real possibility. Recovering potash prices could be a defining catalyst for potash companies in 2015. Strong Buy."




    Mosaic: Potash Industry Rebound Should Lead To Juicy Valuation Growth In 2015
    Feb. 12, 2015 5:54 AM ET | About: The Mosaic Company (MOS), Includes: POTby: Achilles Research
    Disclosure: The author is long POT. (More...)The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.


    Summary
    • Mosaic reported strong fourth quarter earnings on Wednesday.
    • Mosaic profited from excellent results in its potash segment.
    • Fundamentals in the potash business are clearly improving.
    • Inventory build-ups and demand growth could translate into rising potash prices in 2015.
    • Rising prices and improving investor sentiment could be major catalysts for valuation growth.

    Shares of potash companies have been holding up well lately, and a lot of it has to do with signs of growth in the beaten-down potash sector. Remember, Uralkali (URALL) pushed the sector into turbulence in July 2013 when it announced that it would break up the cartel it was forming with Belarusian potash producer Belaruskali. Ever since, potash firms have been in recovery mode.
    I have endorsed potash firms like Potash Corp. (NYSE:POT) and Mosaic (NYSE:MOS) shortly after the meltdown in 2013, because many CEOs of fertilizer companies public stated that they were baffled by the sudden change in sentiment about potash firms. At the time, Wall Street dramatically cut earnings estimates and target prices for firms within the potash industry. As it turns out, Wall Street was dead wrong.
    Positive industry development

    Mosaic's earnings guidance in January has already set the bar for potash producers. Specifically, Mosaic guided for phosphates volumes and phosphates and potash margins above its own expectations. Further proof of improving sector fundamentals was given by Potash Corp., which released earnings in early February: Potash Corp. reported better price realizations across segments in phosphate, nitrogen, and potash. Potash Corp. also sold record volumes of potash in the fourth quarter, 2.5 million tonnes.


    On Wednesday, Mosaic reported 4Q 2014 results and the trend in Mosaic's potash segment is underscoring the message investors already got from Potash Corp.: The potash sector is recovering and, in my opinion, is the most likely sector to outperform expectations in 2015.
    Fourth quarter results

    Mosaic reported fourth quarter net sales of $2.4 billion, up from 2.2 billion a year ago. Earnings came in at $361 million, or $0.97 per share, which compares against $129 million in 4Q 2013, or $0.30 per share; that's an increase of 180% year over year on a total dollar basis, and a 223% increase on a per share basis.
    The fourth quarter of 2013 was an incredibly tough quarter for fertilizer companies, because the potash price just fell through the floor. I argued at the time that low fourth quarter profitability was not representative of the long-term earnings capacity of the potash sector, and I think 4Q 2014 results prove that this assumption was spot on.
    When Mosaic released its fourth quarter earnings, I immediately jumped to the section depicting results in the potash segment. I was glad to see that Mosaic's actual results were indeed at the higher end of its guidance range, or even exceeded it.
    (click to enlarge)
    Source: Mosaic Fourth Quarter Earnings Release


    Mosaic benefited from strong potash demand in the last quarter of 2014. Good news is that Mosaic expects momentum to continue to support the potash business in 2015 as dealers build up inventories. Mosaic already produced record volumes of potash in 4Q 2014, and if demand remains robust in the first of half of 2015, higher potash prices could provide tailwinds for Mosaic's earnings and valuation growth.
    The potash segment surely has the potential to lead the way.
    Mosaic's fourth quarter potash sales stood at $763 million, up 17% year over year. Potash's gross margin, in absolute terms, increased from $134 million in 4Q 2013 to $304 million in the most recent quarter. On a percentage basis, Mosaic almost doubled its gross margin to 40%. Those fundamentals reflect a healthy business. If projected demand growth translates into higher average selling prices throughout 2015, the potash sector has indeed a really good chance of outperforming.
    Bottom Line

    Mosaic's earnings guidance and Potash Corp.'s solid results have shown that fertilizer companies have more going for themselves than investors like to admit. Mosaic's fourth quarter results gave further proof that fundamentals in the potash business have improved a lot since the disaster quarter in 4Q 2013. Since potash companies as a group are optimistic about inventory build-ups and demand growth, price growth is a very real possibility. Recovering potash prices could be a defining catalyst for potash companies in 2015. Strong Buy.


    Sorry, not sure why this is 'right-aligned'..

    Cheers


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