Morningstar | Compass Minerals' Rally Isn't Over
Since touching an 11-year low below $40 per share in late 2018, shares of wide-moat Compass Minerals have rallied more than 40%. The market seems to be warming to the notion that harsh winter weather in January and February will boost deicing salt prices in the upcoming bid season. However, current share prices still reflect a wait-and-see attitude from investors regarding the resolution of recent operational headwinds at the company's flagship Goderich rock salt mine.We are more optimistic, as we anticipate that Goderich production will be fully restored by the end of 2019. In turn, we expect production costs to decline more than 10% year on year in 2020. An improved cost structure combined with higher prices should drive material margin expansion for Compass. Our 17% companywide midcycle operating margin forecast represents a significant improvement from only 9% in 2018.
At current share prices, we see roughly 40% upside for Compass relative to our $81 per share fair value estimate. Our fair value estimate sits well above the median consensus estimate of $62 per share, based on S&P Capital IQ data. Our above-consensus view is driven primarily by our outlook that Compass will be able to fully restore production and profitability in the salt business. We also contend that Compass' micronutrient business is somewhat underappreciated by the market. We expect micronutrient fertilizer demand growth to outpace that of primary fertilizers, driving future profit growth for the plant nutrition business.
For more information on our outlook for Compass Minerals and winter weather, see our April 25 report, "Compass Minerals' Rally Isn't Over; We Still See 40% Upside."
Compass Minerals International is a holding company. Through its wholly owned subsidiaries, the company is a provider of minerals, including salt, secondary nutrients and micronutrients, and specialty chemicals. The company has three reportable segments: Salt, which produces, markets and sells salt and magnesium chloride and sodium chloride; Plant Nutrition North America, which includes sales of sulfate of potash specialty fertilizer and specialty plant nutrients; and Plant Nutrition South America, which manufactures, distributes and markets an array of specialty plant nutrients and supplements developed and formulated from primary and secondary nutrients, specialty plant nutrients and biostimulants.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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