Citigroup Cuts Mosaic To Neutral, Says Phosphate Supply Outstrips Demand

With the entry of new competitors, phosphate fundamentals have weakened, according to Citigroup. 

Moves by Mosaic Co MOS to improve supply dynamics by curtailing capacity are unlikely to result in a significant upturn, the sell-side firm said in a Friday downgrade. 

The Analyst

Citigroup’s P.J. Juvekar downgraded Mosaic from Buy to Neutral and reduced the price target from $38 to $30.

The Thesis

Given new competitor capacity in Morocco and Saudi Arabia, both of which have lower cost structures, Mosaic is being forced to protect pricing by cutting production, Juvekar said in the downgrade note. 

Although Mosaic has significantly lowered costs, the surplus supply is causing intense pressure, the analyst said. While there could be a slight rebound in phosphate fundamentals in spring, it would be short-lived, he said.

Phosphate supply will likely continue to exceed demand in 2019 and 2020, unless China curtails capacity, Juvekar said.

Against this backdrop, phosphate prices may remain mostly flat over the next few years, the analyst said. 

Citigroup cut its EPS estimates for Mosaic for 2019, 2020 and 2021 from $2.35 to $2.30; from $2.78 to $2.35; and from $3.12 to $2.60, respectively, to reflect lower phosphate volumes and prices.

Juvekar recommends Nutrien Ltd NTR instead, citing a diversified business and strong balance sheet.

Price Action

Mosaic shares were trading 1.21-percent higher at $27.50 at the time of publication Friday. 

Related Links:

Benzinga's Top Upgrades, Downgrades For March 29, 2019

Benzinga's Top Upgrades, Downgrades For March 26, 2019

Photo by Jason Parker-Burlingham/Wikimedia.