The Mosaic Company (MOS): Navigating Short-Term Challenges for Long-Term Gains

The Mosaic Company (NYSE:MOS), a global leader in phosphate and potash production, has faced near-term headwinds due to operational setbacks, leading to revised production guidance for 2025. However, these challenges are overshadowed by strategic initiatives, resilient pricing dynamics, and an undervalued position relative to peers. For investors willing to look past short-term volatility, MOS presents a compelling opportunity to capitalize on its path to recovery and long-term growth.

Production Setbacks: A Temporary Hurdle

MOS's Q1 2025 earnings revealed significant production delays, particularly in its phosphate division. Phosphate sales volumes were reduced to 1.5–1.6 million tonnes for Q2, down from earlier expectations, and full-year production guidance was trimmed to 7.0–7.3 million tonnes. Key issues included:
- New Wales Facility: Delays in commissioning new gypsum handling systems caused bottlenecks, though these are expected to be resolved by early July, unlocking an annualized run rate of 3.0 million tonnes.
- Louisiana Facilities: Extended outages from unexpected maintenance needs pushed repair timelines, though output is projected to rebound to 1.4 million tonnes annually by Q3.

Despite these challenges, MOS remains confident in achieving its 8.0 million tonnes annualized phosphate production target by late 2025. Once system upgrades are complete, operational reliability should improve significantly, aligning with the company's $150 million cost-savings goal for 2025.

Phosphate Pricing Resilience: A Key Catalyst

While production delays have pressured near-term results, MOS benefits from strong phosphate pricing trends. The company raised its Q2 DAP price guidance to $650–$670 per tonne, up from $635–$655, driven by supply constraints and robust demand from emerging markets like India and Brazil.

The global phosphate market is tightening due to reduced supply from China and Chile, while demand is buoyed by biofuel production in Brazil and improving affordability in India. With global phosphate supply growth expected to lag demand, MOS's pricing power should remain intact, supporting margins and cash flow.

Strategic Initiatives: Building Long-Term Value

MOS is executing a multi-pronged strategy to drive growth and efficiency:

1. Cost Reduction & Capital Allocation:
2. Achieved $90 million in annualized cost savings year-to-date, with a $150 million target by year-end.

3. Focused CapEx ($1.2–$1.3 billion in 2025) on high-return projects like the Palmeirante blend plant in Brazil, enhancing its presence in a critical growth market.

4. Biosciences Division Growth:

5. Revenue for proprietary products (e.g., MicroEssentials) is expected to double in 2025, with Q4 profitability targeting 60% gross margins. This segment could become a key profit driver over time.

6. Portfolio Optimization:

7. Divesting non-core assets (e.g., Carlsbad potash properties) to redeploy capital into core operations.

Valuation: Undervalued Relative to Peers

MOS's current valuation metrics suggest it is trading at a discount to peers, making it a compelling entry point:

Metric	Mosaic (MOS)	Nutrien (NTR)	CF Industries (CF)
P/E Ratio	11.44	55.84	13.20
EV/EBITDA	6.49	11.62	8.10
Dividend Yield	2.00%	3.65%	1.55%

MOS's 6.49 EV/EBITDA multiple is sharply lower than Nutrien's 11.62 and CF's 8.10, despite comparable EBITDA growth prospects. Analysts project MOS's Adjusted EBITDA to reach $2.2 billion in 2025, yet the stock trades at a discount, reflecting short-term production risks. This divergence creates an attractive valuation asymmetry.

Dividend Sustainability: A Steady Anchor

MOS's dividend yield of 2.00% offers a modest but stable return. While its payout ratio (cash flow to dividends) is manageable, the company's focus on free cash flow generation (projected to improve post-Q2) should support dividend sustainability. Even with reduced production in H1 2025, the phosphate price uplift and cost-saving initiatives will help offset headwinds.

Risks to Consider

• Operational Delays: Any further setbacks in resolving New Wales' bottlenecks could delay production targets.
• Geopolitical Risks: Trade disputes or Belarusian potash oversupply could pressure prices.
• Weather Risks: Hurricanes or droughts could disrupt output in key regions like Florida or Brazil.

Investment Thesis: Buy MOS for Long-Term Gains

The recent dip in MOS's stock price (down ~7% post-earnings) has created a buying opportunity. Key positives include:
1. Production Turnaround: Q3/Q4 are critical for demonstrating the success of system upgrades, which could unlock a multi-year growth trajectory.
2. Valuation Discount: MOS is undervalued relative to peers, offering a margin of safety.
3. Phosphate Price Resilience: Strong demand and supply constraints support pricing power.

Actionable Recommendation:
- Buy MOS at current levels (as of June 2025, ~$40/share) with a 12-month price target of $55–$60, assuming production targets are met and phosphate prices remain robust.
- Hold for 1–3 years to capture the recovery in phosphate volumes and biosciences growth.

Conclusion

The Mosaic Company's short-term operational challenges are temporary and resolvable, while its long-term fundamentals—strong pricing, strategic initiatives, and undervaluation—position it for significant upside. Investors with a patient outlook can capitalize on MOS's path to production recovery and sector leadership, making it a standout play in the fertilizer sector's ongoing rebound.