On May 23, we issued an updated research report on
). While the fertilizer maker is poised to benefit from strength in
the agriculture and crop input market, it is exposed to a soft
wholesale pricing environment and certain near-term challenges.
Agrium's profit dropped year over year in the first quarter of
2014, reported on May 6, due to bad weather and lower nutrient
pricing. Revenues fell as gains in the core retail business were
more than offset by a double-digit decline in the wholesale
Agrium, a Zacks Rank #3 (Hold) stock, follows a strategy to grow
along the value chain through a combination of acquisitions and
organic development. The acquisition of Viterra Inc's agri-products
business is an excellent fit to Agrium's portfolio, allowing it to
offer highly competitive products, services and technologies by
combining its experience with Viterra's profound knowledge of
western Canadian agriculture.
Agrium stands to gain from overall strong fundamentals for the
agriculture and crop input market. The company is expected to see
strong demand for crop protection products in 2014. Favorable crop
prices have triggered a rebound in farmer sentiment in this year's
spring application season, supporting demand for crop nutrients.
However, the pricing environment is expected to remain soft in the
wholesale business. Nitrogen prices may remain under pressure due
to Chinese export supplies. While phosphate import is expected to
improve in India (a major import market) in 2014 compared with
2013, uncertainty remains on timing and scale of import.
Agrium also faces challenges in form of transportation bottlenecks
and plant outages. Harsh winter weather has challenged rail and
port transportation logistics so far this year and constrained
logistic capacity is expected to contribute to tight supply and
demand balances within regional markets through the spring season.
Moreover, the unplanned outage at the company's Carseland plant
will cut nitrogen volumes and is expected to affect earnings in
Other Stocks to Consider
Other companies in the basic materials sector worth considering are
Yara International ASA
Compass Minerals International Inc.
). While both Yara International and Compass Minerals hold a Zacks
Rank #1 (Strong Buy), PetroLogistics retains a Zacks Rank #2
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