We have retained our Neutral recommendation on leading
Potash Corp. of Saskatchewan, Inc.
). While the company may gain from a recovery in fertilizer
demand in 2013, it is exposed to a weak pricing environment and a
still challenging demand scenario in India.
Why Kept at Neutral?
Both revenues and earnings for first-quarter 2013, reported on
April 25, topped Zacks Consensus Estimates. Revenues climbed by
double digits year over year, driven by higher potash demand.
Potash Corp. registered a rise in sales volumes for potash and
nitrogen in the quarter.
Potash Corp., a Zacks Rank #3 (Hold) stock, has a competitive
advantage stemming from its mining rights to the world's largest
potash reserve. The company has a strong geographic
diversification and continues to invest in expanding its
operational capability in potash.
While there is uncertainty surrounding the U.S. economy and the
sovereign debt crisis in Europe, the strain on the world's food
supply is driving demand for all three nutrients of the company,
especially potash. Given the tight potash supply in North America
and Latin America, the demand for potash is expected to rise as
buyers are now seeking to secure the product.
With more than half of the world's estimated new supply coming
from its projects between now and 2015, Potash Corp. believes
that it can capture a significant share of demand growth over the
next several years.
However, Potash Corp. is exposed to macroeconomic uncertainties
and price volatility. Average realized potash price dipped around
17% year over year in the first quarter. Pricing pressure was
also witnessed in the phosphate segment.
Moreover, Potash Corp. is seeing somewhat weak potash demand in
India, a key market. The Indian government's move to trim potash
subsidy levels coupled with higher retail pricing is hurting
demand in that country. These challenges may sustain through
Other Stocks to Consider
AMER VANGUARD (AVD): Free Stock Analysis
FERRO CORP (FOE): Free Stock Analysis Report
OM GROUP INC (OMG): Free Stock Analysis
POTASH SASK (POT): Free Stock Analysis Report
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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).