Mosaic Co (MOS) Could Become One of Buffett’s Favorites (Part 1) – Potash Corp./Saskatchewan (USA) (POT), Agrium Inc. (AGU)

Reasonably valued

Mosaic is trading at $58.40 per share, with a total market cap of $24.85 billion. The market is valuing Mosaic at around 7.86 times EV/EBITDA. Compared to its peers Agrium Inc. (NYSE:AGU) and Potash Corp./Saskatchewan (USA) (NYSE:POT) of Saskatchewan, Mosaic seems to be quite reasonably valued. Agrium Inc. (NYSE:AGU) is the smallest company among the three, with $15.55 billion in total market cap. At the current trading price of $104.40 per share, Agrium Inc. (NYSE:AGU) is valued the cheapest at 7 times EV/EBITDA. Potash Corp./Saskatchewan (USA) (NYSE:POT), the biggest company, is worth $34.26 billion on the market. At the current trading price of $39.60 per share, the market is valuing Potash Corp./Saskatchewan (USA) (NYSE:POT) the most expensive, at 10.75 times EV/EBITDA.

Indeed, Potash Corp./Saskatchewan (USA) (NYSE:POT) deserves a high valuation, as it is the world’s leading potash producer, and it is the most profitable company among the three. Its operating margin is as high as 40%, while Mosaic generates a 22% operating margin. Agrium Inc. (NYSE:AGU) has the lowest operating margin at only 13.24%.

Recently, hedge fund Jana Partners has tried to urge Agrium Inc. (NYSE:AGU) to spin off its retail business to drive its share price higher. Jana Partners argued that Agrium Inc. (NYSE:AGU) has not reached its full potential for two main reasons: first, Agrium Inc. (NYSE:AGU)’s true value was burdened in a conglomerate structure with two different businesses–a volatile fertilizer business and a stable farm product distribution business. Second, the board did not have a retail experience to efficiently manage the retail business.

Foolish Bottom Line

Among the three, I prefer Mosaic and Potash Corp./Saskatchewan (USA) (NYSE:POT), as they enjoy strong market positions, generate high operating margins, and have reasonable valuations. While Agrium is more of an opportunistic play on corporate actions, both Mosaic and Potash Corp could be long-term stocks for patient investors.

The article This Company Could Become One of Buffett’s Favorites (Part 1) originally appeared on and is written by Anh HOANG.

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