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Potash Corp Upgraded to Strong Buy on Solid Q1, Upbeat View

Zacks

On May 17, Zacks Investment Research upgraded fertilizer giant, Potash Corp. POT to a Zacks Rank #1 (Strong Buy). Going by the Zacks model, companies sporting a Zacks Rank #1 have higher chances of outperforming the broader market.

Why the Upgrade?

Potash Corp. delivered strong results in first-quarter 2017 by recording a profit of $149 million or 18 cents per share, up 98.7% from $75 million or 9 cents per share it earned a year ago. Earnings per share for the reported quarter topped the Zacks Consensus Estimate of 10 cents.

Potash Corporation of Saskatchewan Inc. Price and Consensus


Potash Corporation of Saskatchewan Inc. Price and Consensus | Potash Corporation of Saskatchewan Inc. Quote

Net sales (as adjusted) for the quarter declined 9% year over year to $979 million but surpassed the Zacks Consensus Estimate of $928 million.

The sales volumes of potash increased 22.2%, while gross margin increased 81.8% year over year, owing to higher offshore sales volumes and reduced per ton costs, which more than offset lower offshore setbacks.

The company recently increased guidance on the back of strong first-quarter results. It now expects earnings in the range of 45–65 cents per share (up from 35–55 cents per share) for the full-year 2017 that includes merger-related charges of 5 cents per share.

The company expects total potash sales volume in the range of 8.9–9.4 million tons in 2017. It projects potash gross margin of $600–$800 million for the year. It also expects combined gross margin for nitrogen and phosphate in the band of $150–$400 million for 2017.

Estimates for Potash Corp. for second-quarter 2017 have been going up of late. Over the last 30 days, the Zacks Consensus Estimate for the quarter has increased by around 11.8% to 19 cents per share.

Earnings estimates for the current year also witnessed an increase of 16% over the past month to 58 cents per share.

Potash Corp.’s shares have lost 15% in the last three months, outperforming the Zacks categorized Fertilizers industry’s decline of 16.9%.



Potash Corp. is expected to benefit from improving demand for potash. While market fundamentals have been challenging in 2016, the company sees an improved environment in 2017 with higher expected demand for potash across key consumer markets. Potash Corp. saw healthy demand for potash in the first quarter and expects consistent customer engagement through 2017, supported by healthy consumption trends.

Potash Corp. and Agrium AGU, in Sep 2016, agreed to merge their businesses to create a fertilizer powerhouse with a pro forma enterprise value of $36 billion. The proposed merger will create the world’s largest crop nutrient supplier and the integrated company will be better placed to counter headwinds in the crop nutrient markets. The transaction is expected to conclude in mid-2017, subject to customary closing conditions.

The combined company will also be better positioned to serve customers and growers with low-cost, high-value products and services and complementary assets. The integrated company is expected to generate as much as $500 million of annual operating synergies. Roughly $250 million of these synergies are expected to be achieved by the end of the first year, following the completion of the transaction.

Other Stocks to Consider

Other top-ranked companies in the basic materials space include Methanex Corporation MEOH and ArcelorMittal MT, both sporting a Zacks Rank #1. You can see the complete list of today’s Zacks Rank #1 stocks here.

Methanex has an expected long-term earnings growth of 15%.

ArcelorMittal has an expected long-term earnings growth of 11.4%.

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