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Compass' Competitive Strengths Are Intact

Unfortunate weather events are hurting near-term profitability, but the company's still worth its salt.

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Unfavorable weather events are hurting Compass Minerals' (CMP) near-term earnings. This company has strong and sustainable competitive advantages for the production of highway deicing salt and sulfate of potash specialty fertilizer. Its rock salt mine in Goderich, Ontario, is the world's largest and has access to a deep-water port, which allows Compass to deliver salt cost-effectively to customers throughout the Great Lakes region. Further, its Great Salt Lake solar evaporation facility allows the company to produce sulfate of potash specialty fertilizer at a much lower cost than most other producers that use ore mining or a chemical process. The Great Salt Lake facility is one of only three in the world.

We think the stock is currently depressed because near-term profitability will be weighed down by a trio of unfavorable weather events: tornado damage costs and production interruptions at Goderich, rainfall-related production shortfalls at the Great Salt Lake facility, and mild winter weather in the Midwest that has hurt demand for deicing salt. Compass' earnings should grow long term as these issues are resolved and as the company expands its sulfate of potash fertilizer production and grows into its expanded rock salt capacity. Long term, the main valuation uncertainty is sulfate of potash prices. We look for prices to trend down in the long term as global potash producers ramp up brownfield expansions, but we think Compass' sulfate of potash earnings will grow as its production increases. The stock is trading at an attractive discount to our fair value estimate.

Elizabeth Collins does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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