3 Reasons The Mosaic Company Could Outperform

Potash Corp in 2016

Image source: The Mosaic Company

#1 Lower exposure to potash

The product mix Mosaic depends largely on phosphate for revenue. Its international distribution activities also relate primarily to its phosphate segment

Data source: Company financials. Charts by author

PotashCorp: 2015 segment-wise sales

Potash

Phosphate

Nitrogen

Mosaic: 2015 segment-wise sales

Phosphate

International distribution

Potash

Why that helps MosaicGlobal demand for phosphate has traditionally proven to

be more resilient than potash

Source: Mosaic’s presentation at Citi’s 2015 Basic Materials Conference, December 2015

Why that helps Mosaic (cont.)Potash prices have been hit harder in recent years on

fluctuating demand

Source: PotashCorp’s Market Overview Report, February 2016

PotashCorp’s profits could dip further as key consumer, India, has stalled potash imports and delayed purchases for the year

Global projections through 2020 suggest greater stability in Mosaic’s sales and earnings going forward:Potash: 21% increase in capacity, 16% growth in demandPhosphate: 11% increase in capacity, 16% growth in demand

Looking ahead

#2 Efficient cost control and superior earnings growth

Strong operational performanceDespite facing similar macro headwinds, Mosaic ended 2015 on a remarkably stronger note than PotashCorp

Data source: Company financials

Company % change in revenue (yoy)

% change in net income (yoy)

Mosaic Down 2% Down 3%

PotashCorp Down 12% Down 17%

Favorable product mix: Stronger demand and prices for phosphate offset weaker potash sales

Aggressive cost control: Mosaic’s selling, general, and administrative expenses hit a six-year low in 2015, declining 5.5% from 2014 levels. Comparatively, PotashCorp’s SG&A expenses declined only 2.5% last year

Declining input costs: Mosaic’s phosphate rock cash production cost hit a near five-year low in 2015

What worked in Mosaic’s favor

Demand and prices of phosphate projected to decline. However, lower input costs should help Mosaic maintain its margins

Cost cutting to continue in 2016:

Looking ahead

Mosaic’s SG&A projection: Down 3%-Up 3% PotashCorp’s SG&A projection: Flat-Up 5%

#3 Attractive valuation

Mosaic shares suffered a similar fate as PotashCorp last year despite a stronger operational performance

Beaten up

The result

Thanks to its steep recent fall, Mosaic is currently trading at only 7.5 times trailing earnings and 8.5

times its free cash flow. That’s cheaper than PotashCorp, and

presents an attractive opportunity

A good bargain

Foolish takeaway

While business conditions remain challenging, a favorable product mix and stringent cost control should boost Mosaic’s margins going forward. At current valuation, the stock appears to be a better bargain than PotashCorp

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