Staying Positive on Fertilizer Sector (MOS, POT, AGU, CF, IPI)

The Mosaic Co (NYSE: MOS) was given a very positive note from Gabelli & Co. this morning, with an exception.  The firm noted, “With corn prices at $5.97 per bushel and the USDA forecasting prices to stay at historically high levels (between $6.20-7.20), agriculture fundamentals remain attractive. Increased global demand for agricultural commodities, expansion of production capacity, favorable fertilizer pricing and population growth should enable MOS to achieve a 12.1% compounded earnings annual growth rate over the next five years.”

Here is the “exception”: the overhang of the Margaret A. Cargill Trust’s control of 129 million shares with the company facilitating secondary offerings over the next five years.  It specifically noted, “However, we believe that the two and a half year lockup on the shares will allow Mosaic time to potentially repurchase the Trust’s shares(…) and mitigate the impact from dilution.”

Mosaic is trading at 5-times 2013 expected EBITDA and 8.6-times 2013 expected earnings per share.  This is a 31% discount to the 2013 private market value of $77.00.

Potash Corp. of Saskatchewan (NYSE: POT), The Mosaic Company (NYSE: MOS), Agrium Inc. (NYSE: AGU), CF Industries (NYSE: CF), and Intrepid Potash Inc. (NYSE: IPI) are all a part of the call.

As for the sector, Gabelli & Co. noted, “We believe the fertilizer industry is attractive due to the long-term growth trends in agriculture. Tight global fertilizer markets and shortfalls in grains supplies are expected to continue throughout 2012 causing a strong pricing environment for North American fertilizer companies.”