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Fewer Snow Days Spell Chilly Results for Compass

Seth Goldstein, CFA

Seth Goldstein: Since the end of January, Compass Minerals stock price has declined almost 15% due to lower deicing salt sales resulting from less snow in Compass' Midwest and Great Lakes regions.

Compass' deicing salt sales are driven by the number of days it snows in Compass' regions. After two straight mild winters with less snow, the key question that impacts our valuation of the stock is: Will climate change continue to drive sharply declining demand for highway deicing salt? In short, we don't believe so.

To investigate further, we analyzed over 120 years of weather history and found that the number of snow days over the last two years was nearly 20% below trend. Over the next couple of decades, we expect the normal number of snow days will trend only slightly lower, as climate change portends warmer winters in Compass' region. 

In the near term, however, we expect that a bounce-back in snow days, driving higher salt demand, is likely. This should lead to materially higher profits for Compass relative to its performance over the last couple years.

At its current share price, we think Compass Minerals looks like an attractive investment relative to our $85 per share fair value estimate.