On May 30, we downgraded leading fertilizer company
) to Underperform following its disappointing first-quarter 2013
results. Our view reflects the weak phosphate price environment,
weak demand in India and unfavorable weather conditions.
Why the Downgrade?
Both revenues and earnings for the first quarter, reported on May
9, missed Zacks Consensus Estimates. Lower revenues from the
larger Retail segment coupled with adverse weather conditions
hurt the top line. Agrium witnessed lower sales for crop
protection products and crop nutrients in the quarter. Moreover,
weak global demand hurt its phosphate business.
Earnings estimates for Agrium are declining following the release
of the first quarter results. The Zacks Consensus Estimate for
2013 has gone down roughly 6% to $9.55 per share. The Zacks
Consensus Estimate for 2014 has also declined roughly 2% to
$9.72. With Zacks Consensus Estimates for both 2013 and 2014
going down, Agrium now has a Zacks Rank #4 (Sell).
Cause for Concern
While Agrium may benefit from high crop prices and overall strong
fundamentals for the crop input market, demand for potash and
phosphate is expected to be weak in India, a key market. Changes
in pricing and subsidy policies by the Indian government are
expected to continue to affect demand in the country.
Moreover, the pricing environment for phosphate is expected to
remain soft in the second quarter. The global phosphate market is
expected to remain weak in the near term, partly due to lower
demand from India (a major phosphate import market). We also
account for unfavorable weather conditions which may hurt crop
Other Stocks to Consider
While we prefer to stay away from Agrium, other companies in the
basic materials sector with favorable Zacks Rank are
American Vanguard Corp.
OM Group Inc.
). While both American Vanguard and OM Group retain a Zacks Rank
#1 (Strong Buy), Ferro carries a Zacks Rank #2 (Buy).
AGRIUM INC (AGU): Free Stock Analysis Report
AMER VANGUARD (AVD): Free Stock Analysis
FERRO CORP (FOE): Free Stock Analysis Report
OM GROUP INC (OMG): Free Stock Analysis
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