Several Reasons Why I'm Staying Bullish On Shares Of Mosaic Company

May. 8.14 | About: The Mosaic (MOS)

Summary

On Tuesday, May 6, Mosaic announced it would be cutting 500 jobs in the next 12 months as part of a new five-year cost cutting plan.

Comparatively speaking, Mosaic is trading at just under 14x forward earnings whereas two of its peers are trading at just under 18x and 20x their respected forward earnings.

Recent trend behavior signals a buying mode for most long-term investors, and that trend behavior could continue, especially if Mosaic improves near-term earnings while reducing its overall expenses.

When a company considers the reduction of its workforce, potential investors tend to become a bit more interested as to what may be going on within that particular company. In this article, I not only wanted to examine Mosaic's (NYSE:MOS) recent announcement regarding its proposed job cuts, but also highlight several of the reasons behind my decision to remain bullish on this particular agricultural chemicals play.

Mosaic Looks To Reduce Workforce As Part Of Its 5-Year Plan To Save $500M

On Tuesday May 6, and in conjunction with its quarterly earnings announcement in which its missed Q1EPS estimates by $0.05/share and revenue estimates by $520 million, Mosaic also announced a 5-year plan in which it hopes to save almost $500 million over the next five years by cutting 500 jobs in the next 12 months. Given the fact that the company's revenues fell nearly 17% on a year-over-year basis, this is certainly a step in the right direction.

Since the cuts are aimed at strengthening MOS' status as a low-cost phosphate producer and improving its relatively high-cost position in potash, I'd like to see an improvement in a number of areas during the second quarter.

I strongly believe that in order to meet and/or exceed its Q2 EPS estimates (analysts are currently calling for MOS to earn $0.83/share), I'd like to see an increase in the company's phosphate sales (within the range of at least 2.25%+ on the low side and 4.5%+ or more on the high side), a fair increase in the company's potash sales (within the range of 2.5% on the low side and 4.5% or more on the high side), and lastly, an increase in the company's cash flows (in this instance, I'm looking for at least a 3% increase on the low side and a 6% or more increase on the high side). If the above mentioned criteria are met and or exceeded, there's a very good chance that current EPS estimates could be surpassed.

Recent Performance & Trend Behavior

On Wednesday, shares of MOS, which currently possess a market cap of $19 billion, a forward P/E ratio of 13.84, and an annual dividend yield of 2.05% ($1.00), settled at a price of $48.75/share. Based on its closing price of $48.75/share, shares of MOS are trading 0.31% below their 20-day simple moving average, 0.23% below their 50-day simple moving average, and 5.38% above their 200-day simple moving average. It should be noted that these numbers indicate both a short-term downtrend as well as a steady long-term uptrend for the stock, which generally translates into a moderate selling mode for most near-term traders and a stronger buyer mode for most long-term investors.

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Comparative Ratios Set Mosaic Apart From Several Of Its Peers

Even though the above referenced numbers indicate a long-term uptrend for the stock, I actually think the company's current share price of $48.75/share offers investors a considerable point of entry, especially since shares are trading at a much better forward P/E ratio than a number of its sector-based peers. For example, MOS's forward P/E ratio was 13.84 based on its May 7 close, whereas the forward P/E ratios of Monsanto (NYSE:MON) (forward P/E ratio of 19.30 as of 5/7) and Potash (NYSE:POT) (forward P/E ratio of 17.64 as of 5/7) were both considerably higher.

Recent Dividend Behavior

Since April 20, 2011, the company has increased its annual dividend twice in the last three years, with the most recent increase having taken place in July of 2012. The company's forward yield of 2.05% ($1.00) coupled with its ability to maintain its quarterly distribution over last three years make this particular agricultural chemicals play a highly considerable option, especially for those who may be in the market for a moderate stream of quarterly income.

Conclusion

For those of you who may be considering a position in the Mosaic, I strongly recommend keeping a close eye on the company's recent trend performance, its ability to continue to maintain its dividend while cutting significant costs and its ability to continue to enhance shareholder value over the next 12-24 months, as each of these factors could play a role in the company's long-term growth.

Disclosure: I am long POT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.