Heavy December Snowfall Buoys Compass Minerals

Shares of Best Idea

As discussed in our August 2017 report, “Winter Is Coming: A Song of Ice and Salt,” light snowfall in recent years had weighed heavily on Compass shares, which were trading near their lowest level since 2009. The market seemed to fret that climate change meant future winters would look much like 2015 and 2016: little snow, weak salt demand, and depressed profits for Compass.

As we argued in that report, 120 years of weather data across Compass' key markets suggested climate change was, indeed, to blame for recent weakness, but only in the sense that it had increased snowfall volatility. In fact, we found that the "normal" winter brings just as much snow as it did decades ago, which made a bounce back in snowfall, salt demand, and profits more likely than not. Last month's heavy snowfall lends credence to that assessment. We maintain our $84 per share fair value estimate and now see moderate upside in Compass shares that trade just shy of $75 as we write. Our wide-moat rating is also intact.

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