On Tuesday, Scotiabank maintained its Sector Outperform rating for Mosaic (NYSE:MOS) shares with a steady price target of $38.00. The decision follows Mosaic's announcement of decreased third-quarter production and shipment volumes for phosphates and potash, attributed to recent operational setbacks.
Mosaic reported an expected decline in phosphate production volume by 80,000 to 110,000 metric tons due to the effects of Hurricane Francine, which hit the Louisiana coast before weakening to a tropical storm. The hurricane's impact on energy infrastructure has led to this downward revision.
Scotiabank estimates that the loss in production could translate to a roughly $10 million hit to Mosaic's third-quarter EBITDA, assuming these lost sales aren't offset by inventory use.
In addition to the phosphate production decline, Mosaic also faces a reduction in potash production and shipments for the third quarter, estimated between 200,000 to 300,000 metric tons. This decrease is due to electrical equipment failures and is expected to lower Mosaic's third-quarter potash shipment guidance from 2.1 to 2.3 million metric tons.
The anticipated EBITDA impact from the reduced potash shipments is about $25 million for the quarter, using the midpoint of the estimated production loss.
Despite these operational issues, which are projected to result in a non-recurring, non-controllable EBITDA impact of $30 million to $40 million, Scotiabank reaffirms its positive stance on Mosaic. The bank highlights that these setbacks do not alter their investment thesis and considers Mosaic their top choice in the fertilizer sector, noting that phosphate margins continue to expand weekly.
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