The Mosaic Company (MOS) and Intrepid Potash, Inc. (IPI) are two prominent players in the agricultural inputs industry. MOS in Plymouth, Minn., produces and markets concentrated phosphate and potash crop nutrients. The company operates through Phosphates; Potash; and Mosaic Fertilizantes segments. It also provides nitrogen-based crop nutrients, animal feed ingredients, and other ancillary services. In comparison, Denver, Colo.-based IPI produces and sells potash and langbeinite products internationally. The company sells potash primarily in the agricultural, industrial, and animal feed markets.

Supply chain disruptions, labor shortages, and adverse weather have caused food prices to hit multi-year highs last month. Most countries have stopped exporting crop nutrients to address their domestic supply-demand imbalance. Given the strong global demand for food, companies engaged in the agricultural space should benefit. Furthermore, technological advancements in seed science and sustainable agricultural practices brighten the industry’s long-term growth prospects. Investor interest in this space is evident in the iShares MSCI Global Agriculture Producers ETF’s (VEGI) 6.4% returns over the past six months versus the SPDR S&P 500 Trust ETF’s (SPY) 1.1% returns. So, both MOS and IPI should benefit.

But while MOS’ shares have gained 20.2% in price over the past nine months, IPI surged 64.2%. IPI is a clear winner with 66.1% gains versus MOS’ 60.8% returns over the past year. But which of these stocks is a better pick now? Let’s find out.

Latest Developments

In its November 2021 sales report, sales revenue from MOS’ Phosphates segment increased 49% year-over-year to $465 million, its sales revenue from its Potash segment increased 67.3% year-over-year to $271, and its sales revenue from its Mosaic Fertilizantes segment increased 102.1% year-over-year to $489 million. MOS is forecasting strong demand and sales in the coming months.

On August 9, 2021, IPI announced an $80/ton increase in the Ag potash price at all locations and for all product grades, and a $50-$55/ton increase to the Trio price depending on grade. Because  attractive grain prices and farmer economics support the global and domestic potash market, IPI should continue to witness great demand in its  fiscal 2021 fourth quarter.

Recent Financial Results

MOS’ net sales for its fiscal 2021 third quarter, ended Sept. 30, 2021, increased 43.5% year-over-year to $3.42 billion. The company’s gross profit came in at $864.50 million, representing a 143.5% rise from the prior-year period. Its operating earnings were $701.60 million, up 612.3% from the prior-year period. MOS’ net income was  $371.90 million for the quarter, compared to a $6.2 million loss in the prior-year period. Its adjusted EPS increased 487% to $1.35. The company had $842.80 million in cash and cash equivalents as of Sept. 30, 2021.

For its fiscal 2021 third quarter, ended Sept. 30, 2021, IPI’s sales increased 55.4% year-over-year to $59.15 million. The company’s gross profit came in at $10.61 million for the quarter, compared to a $308,000 loss in the year-ago period. Its operating income was $4.08 million versus a $7.75 million loss in the prior-year period. IPI’s adjusted net income came in at $4.03 million, compared to a $10.15 million net loss in the year-ago period. And its adjusted EPS came in at $0.30 versus a $0.78 loss per share in the prior-year period. The company had $25.64 million in cash and equivalents as of Sept. 30, 2021.

Past and Expected Financial Performance

MOS' revenue and EBIT have increased at CAGRs of 6.2% and 31.2%, respectively, over the past three years. And the company’s levered free cash flow has declined at 9.4% CAGR over the past three years.

Analysts expect MOS’ EPS to rise 511.8% year-over-year in fiscal 2021, ended Dec. 31, 2021, and 45.8% in fiscal 2022. Its revenue is expected to grow 43.4% year-over-year in fiscal 2021 and 21.1% in fiscal 2022.

In comparison, IPI’s revenue and EBIT have grown at CAGRs of 8% and 19.3%, respectively, over the past three years. And the company’s levered free cash flow has grown at 13.5% CAGR over the past three years.

IPI’s EPS is expected to rise 231.1% year-over-year in fiscal 2021, ending Dec. 31, 2021, and 123.3% in fiscal 2022. Its revenue is expected to grow 23.4% year-over-year in fiscal 2021 and 19% in fiscal 2022.

Valuation

In terms of forward EV/Sales, IPI is currently trading at 2.36x, which is 44.8% higher than MOS’ 1.63x. In terms of forward EV/EBITDA, IPI’s 8.27x compares with MOS’ 5.56x.

Profitability

MOS’ trailing-12-month revenue is almost 55.2 times IPI’s. However, IPI is more profitable, with a 27.1% EBITDA margin versus MOS’ 25%.

Furthermore, IPI’s 28.5% levered free cash flow compares favorably with MOS’ 4.5%.

POWR Ratings

While IPI has an overall B grade, which translates to Buy in our proprietary POWR Ratings system, MOS has an overall C grade, which equates to a Neutral. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.

IPI has an A grade for Growth. The company’s levered free cash flow has grown 69.3% from the prior-year period. MOS’ C grade for Growth is in sync with its negative levered free cash flow over the past year.

IPI has a B grade for Quality, which is consistent with its higher-than-industry profitability ratios. IPI’s 28.5% trailing-12-month levered free cash flow margin is 346.3% higher than the 6.4% industry average. MOS has a C grade for Quality, which is in sync with its lower-than-industry profitability ratios. MOS has a 4.5% trailing-12-month levered free cash flow margin, which is 30.3% lower than the 6.4% industry average.

Among the 28 stocks in the C-rated Agriculture industry, IPI is ranked #8, while MOS is ranked #12.

Beyond what we have stated above, our POWR Ratings system has also rated IPI and MOS for Value, Sentiment, Momentum, and Stability. Get all IPI ratings here. Also, click here to see the additional POWR Ratings for MOS.

The Winner

Given the surging demand for fertilizers and crop nutrients, IPI and MOS should grow substantially. However, we think its higher profitability makes IPI a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy. Click here to access the top-rated stocks in the Agriculture industry.

MOS shares were trading at $44.86 per share on Tuesday afternoon, up $0.40 (+0.90%). Year-to-date, MOS has gained 14.18%, versus a -5.21% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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