Analyst Actions: Agrium Target Cut $7 at Credit Suisse, But Keeps Outperform; Shares Rise 2%

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Credit Suisse analysts have lowered their price target on Agrium Inc. ( AGU ) to $125 from $132 a share, and also lowered their earnings estimates for the producer of nutrients for agricultural and industrial markets.

"It is clear that the focus remains on improving longer-term performance in the retail segment. While we would certainly credit recent shareholder debates for re-focusing investors' attention on retail operations, we believe this would have naturally occurred this year due to its increasing profitability contribution relative to the nitrogen segment due to passing peak fundamentals in 2012," said Credit Suisse.

Tweaking Estimates Due to Global Nitrogen Headwinds

"Despite AGU's nitrogen business being relatively more insulated to global pricing headwinds, we believe that the recent precipitous decline in pricing will likely pressure results in the second half to a greater degree than our original forecasts. As a result we are trimming our 2013 EPS estimate to $10.00 (from $10.25), which mostly derives from cuts in 2H13 pricing (~75% of nitrogen pricing is locked in for 1H). In addition we are also lowering our 2014 EPS estimates to $10.20 (from $10.45). We are also reducing our target price to $125 (from $132), which is based on 7.5x our normalized NTM EBITDA estimate of ~$2.8bln."

Retail Improvements to Drive Aggregate Share Performance

"While it is clear that "Peak Ag" fears will continue to lead to significant volatility within the fertilizer group (which at present shows little signs of abating until post US planting), we continue to believe that the recent decline in AGU shares represents an attractive long-term entry point. Our view remains predicated upon investors underappreciating the full potential to improve operating margins in the retail segment and the subsequent effect on the segment's profitability and equity value contributions, particularly relative to the nitrogen segment (which typically garners a multiple of roughly half of retail)."

Shares of AGU are up 1.83% to $92.94 in afternoon trade, and are within a 52-week range of $74.28 - $115.31.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

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This article appears in: Investing , Commodities

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