- Fertilizer stocks lacked momentum in the previous month as traders took profits after the major rally.
- Meanwhile, analysts continued to adjust their estimates, highlighting the sustainability of high fertilizer prices.
- Mosaic and Nutrien are trading at just 6-7 forward P/E, and the potential multiple expansion could push these stocks to recent highs.
Fertilizer stocks have been mostly range-bound in May as traders continued to take profits off the table after the major rally. Meanwhile, analyst estimates were moving higher, which could provide additional support to the stocks in this market segment.
Analysts estimates for Nutrien keep moving higher, and the company is expected to report earnings of $13.95 per share in the next year. The stock is trading at just 7 forward P/E, which is cheap.
It looks that the market is worried that high fertilizer prices will not be sustainable in the longer-term. However, there is enough room for multiple expansion, so Nutrien stock may have more upside even if earnings estimates remain intact.
Mosaic stock was also stuck in a range in May while analyst estimates continued to improve. Currently, the company is expected to report earnings of $14.22 per share in the current year and $10.81 per share in the next year, so the stock is trading at just 6 forward P/E.
As in Nutrien’s case, the market looks worried about the sustainability of high fertilizer prices. At the same time, analysts have already realized that the recent upside moves in fertilizer markets are not temporary, so they continue to adjust their estimates.
Multiple expansion could be the key driver for Mosaic shares in the upcoming months as the current valuation looks too modest. The main risk is the potential market sell-off due to Fed’s quantitative tightening, which could put pressure on most stocks.
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