Interesting blurb from a smaller brokerage Soleil via Notable Calls blog on
Mosaic (MOS). One thing we are missing in this market are takeovers; normally at these valuations they'd be coming fast and furious but without access to credit that is going to be a tough nut to crack. If credit conditions can meaningfully improve, I'd expect to see a wave of takeovers providing a nice floor on this market as some stocks are simply trading at obnoxious valuations.
- Soleil's Gulley & Associates is out with a noteworthy call on Mosaic (NYSE:MOS) noting that Cargill's four-year standstill re Mosaic expires this Wednesday. The expiration sets up the possibility that Cargill could accept the gift that "Mr. Market" is presenting: accretively increasing its ownership stake in Mosaic.
- How accretive? Buyout of the 35% minority stake could boost Cargill earnings by more than 20%, given the fact that Mosaic is currently trading at just 2.7x consensus calendar 2009E EPS of $12.25.
- Knowledgeable buyer. Given Cargill's extensive knowledge of the global grain markets, any action it takes with respect to its Mosaic ownership position will be closely watched. Cargill is a leading global grain processor and one of the largest private companies in the U.S., with F2008 sales of $120 billion and net income of $4 billion.
- Mosaic shares are down 80% from the mid-June peak of $163, during which time the S&P 500 is down 30%. With Mosaic's equity market cap of just $15 billion, down from the peak of $72 billion, the 35% owned by the public is currently worth just $5 billion, down from the peak of $25 billion.
- Mosaic currently accounts for roughly half of Cargill earnings:
- Cargill reported 1QF09 net profit of $1.5 billion
- Mosaic reported 1QF09 net earnings of $1.2 billion; 65% of which is $0.8 billion, approximately half of Cargill's $1.5 billion. - Quoting from Mosaic's F2008 10-K filing filed July 29, 2008:
"Standstill provisions in our Investor Rights Agreement with Cargill restrict Cargill from acquiring additional shares of our common stock from our public stockholders and taking other specified actions as a stockholder of Mosaic. These restrictions will expire on October 22, 2008. Following the expiration of the standstill period, Cargill will be free to increase its ownership interest in our common stock." - With Mosaic currently trading at a P/E of just 2.7x, Cargill's buyout of the minority interest it doesn't own should be highly accretive to its net earnings. Firm ran twocases, at $50 and $82.5 per Mosaic share.
- Maintains Buy and $127 tgt on MOS. (almost laughable how far off the targets are versus the real stock price - again, if Mosaic's earnings which are modeled to increase next year - go worst case and fall in HALF in 2009 as a meteor strikes Earth, than it's trading at 6x 2009 estimates)
Long Mosaic in fund and personal account
