We recommend buying Mosaic (MOS) ahead of its Q3 2012 earnings release on Tuesday, Oct. 2, 2012, for a short-term speculative trade. Our bullish call is based on a combined assessment of what we believe to be useful predictive factors for earnings surprises and post-earnings stock price movements. These factors span key variables across valuation, analyst estimate trends, and technical strength.
Valuation -- Slightly Undervalued
We believe Mosaic to be fairly valued on an absolute basis and undervalued on a relative basis. On an absolute basis, based on consensus analyst estimates, Mosaic is valued with a 2013 P/E of 10.7 times and 2013 EV/revenue of 2.3 times, which we believe to be near fair value, given its projected 2013 EPS growth of 9%, and 2013 revenue growth of -1%. However, on a relative basis when compared to its publicly traded comparables, Mosaic is valued at a discount to Potash (POT) and Monsanto (MON) on both 2013 P/E and 2013 EV/revenue. While analysts expect Mosaic to grow slower than Potash and Monsanto, we believe the current valuation discount gap to be larger than warranted.
A summary analysis is presented below to highlight key valuation multiples, growth, and profitability metrics between Mosaic and its comparables:
Source: Company filings, Yahoo Finance.
Analyst Estimate Trends -- Bearish
Current Analyst Estimates: Revenue estimates for Mosaic's current quarter range from $2.74 billion to $3.02 billion, with an average estimate of $2.88 billion (-6.6% from $3.08 billion in Q3 2011), while EPS estimates range from $1.05 to $1.27, with an average estimate of $1.15 in EPS (-1.7% vs. $1.17 in Q3 2011).
EPS Surprise History -- Neutral
Mosaic has moderately beaten EPS estimates in two of the past four quarters, while moderately missing EPS estimates the other two quarters.
EPS Estimate Revisions -- Bearish
Recent analyst EPS estimate revisions have been bearish, with Q3 2012 EPS being revised down from $1.20 (90 days ago) to $1.16 (60 days ago), and further down to $1.15 (current).
7 Days Ago
30 Days Ago
60 Days Ago
90 Days Ago
Source: Yahoo Finance.
Technical Strength -- Bullish
We believe Mosaic's underlying technical strength, as measured by its historical share price performance, to be bullish with its longer-term moving averages and all MACD oscillators under bullish signals.
- 20-Day Moving Average: Bearish
- 50-Day Moving Average: Bullish
- 100-Day Moving Average: Bullish
- 20- to 50-Day MACD Oscillator: Bullish
- 20- to 100-Day MACD Oscillator: Bullish
- 50- to 100-Day MACD Oscillator: Bullish
Disclaimer: Earnings Speculator is a trading advisory service designed to capture alpha by predicting post-earnings moves of stocks through a detailed analysis of key predictive factors. While our goal is to generate consistent alpha over time through employing a long-term positive probability edge in our predictions, the ultimate performance of any one of our individual stock recommendations is highly uncertain. We strongly recommend allocating no more than 2% of your trading portfolio to each of our recommendations in order to sufficiently diversify your risk and to be well positioned for long-term alpha generation through focusing on the prediction of post-earnings share price movements.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.