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UPDATE: Morgan Stanley Downgrades Mosaic Following Potash Industry Shift

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In a report published Wednesday, Morgan Stanley analyst Vincent Andrews downgraded Mosaic (NYSE: MOS) from Overweight to Equal-Weight, and removed the $70.00 price target.

In the report, Morgan Stanley noted, “Our $70 per share Overweight thesis had been predicated on Mosaic's being able to repurchase 30% of shares outstanding and then double its dividend to $2 per share with further increases thereafter. Despite lower earnings and debt capacity, we still believe that the company can repurchase 16% of shares (at the now materially lower share price) over the 12-24 month period beginning in late November, however a $2 per share dividend would now represent a 66% payout ratio, which we do expect or think Mosaic should gravitate too. Our new run-rate EPS estimate is $2.50 which with a 17% share repurchase would increase to ~$3.00, all else equal. Assuming a 50% dividend payout ratio on $3 of EPS and a 3% to 4% yield effectively gets us to the current share price (~$43). Our ultimate $3 per share post-purchase scenario would also represent ~14-times EPS and 7.5-times EBITDA, multiples we do not expect to expand given the impairment to investors' perception of potash industry structure (i.e., the likely shift from emphasizing volume over price to emphasizing position on the cost curve) and which could contract depending on how the potash market evolves following today's very surprising announcement from Uralkali.”

Mosaic closed on Tuesday at $43.81.

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