Analyst raises outlook on Mosaic

A Goldman Sachs analyst said that fertilizer maker Mosaic Co. is poised for higher profits in 2013 thanks to strong demand from farmers, in spite of the company's disappointing earnings during the most recent quarter.

THE OPINION: Analyst Lindsay Drucker Mann raised her target price on Mosaic's shares to $71 per share from $67. The new target is about 27 percent higher than Mosaic's value Friday morning.

The company has been caught in a pinch between high input costs and relatively weak prices that it can charge for fertilizer. Mann said things will be tough in the short term, but late Thursday she raised her price target on Mosaic's shares because of their long-term potential.

The Plymouth, Minn.-based company is the world's largest producer of concentrated phosphate and potash crop nutrients. When farmers are willing to pay more money for fertilizer, Mosaic can turn a decent profit even if it has to pay more for its raw ingredients. But if farmers cut back, Mosaic's profit margins suffer because its costs remain high.

The company reported its fiscal third-quarter earnings Wednesday, and the results were below expectations. Mosaic said that its fiscal third-quarter net income fell nearly 50 percent from the year before, thanks to lower potash volumes and higher phosphate costs.

Analysts had expected net income of 74 cents per share on revenue of $2.12 billion, according to FactSet.

Mann acknowledged that the quarterly results were disappointing, and she cut her profit outlook for the fiscal fourth quarter. But she said things should start to improve by the second half of this year.

Corn prices should stay above $6 a bushel, Mann said, which will persuade farmers to invest in more fertilizer. At the same time, Mosaic's raw ingredient costs should start falling thanks to more mining production. Fertilizer prices could climb as China cuts back its exports, she said.

As a result, Mann raised her profit outlook for Mosaic's 2013 fiscal year to $5.30 per share from $4.85 per share. She raised her 2014 profit forecast to $6.63 per share from $6.14 per share.

Analysts, on average, are forecasting net income of $5.12 per share in 2013 and $5.46 per share in 2014, according to FactSet.

But the short term doesn't look so bright. Mann cut her fourth-quarter estimate to 52 cents per share from $1 per share.

THE STOCK: Mosaic shares gained 30 cents, or less than 1 percent, to $55.57 in morning trading Friday. The stock has been climbing this year along with other fertilizer makers, and is up about 6 percent since early January.

But the stock is still well below the peaks it hit in 2008, when historically high crop prices supported demand for fertilizer. The stock traded above $153 a share in the summer of 2008.