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Morgan Stanley Downgraded Mosaic: What It Means for Investors

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Why was Mosaic downgraded?

On March 16, Morgan Stanley downgraded Mosaic (MOS) stock from an “overweight” rating to an “equal-weight” rating. Analyst Vincent Andrew downgraded the stock. He stated that it’s “well understood” that the company’s capital expenditures to ramp up its low-cost phosphate facility at Ma’aden combined with low ammonia prices will improve its profits. However, its cash flow situation remains challenging.

The price target was also lowered from $42 to $29. This is almost where the stock closed at the end of the day on March 16.

Morgan Stanley Downgraded Mosaic: What It Means for Investors

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Pinch points

Analysts expressed concerns about the outlook. The company’s cash flow didn’t keep pace with the capital expenditure, as you can see in the above chart. This is mainly impacted by depressed phosphate and potash prices over the year.

Core issue

Mosaic mainly produces phosphate fertilizers such as diammonium phosphates or monoammonium phosphates. The prices of both fertilizers declined over the past year due to excess capacity built up and weak demand. This situation was negative for companies such as Potash Corporation (POT), Intrepid Potash (IPI), and Israel Chemicals (ICL).

You can also invest in Mosaic through a broader portfolio such as the SPDR S&P North American Natural Resources ETF (NANR). NANR has 12% exposure towards agricultural chemical companies.

In recent months, Mosaic’s price-to-next 12-month free cash flows rose. How do they compare with its peers? Should investors be concerned? We’ll discuss this next.

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