On Aug 20, we retained our Underperform recommendation on
leading fertilizer company
). Our view reflects continued weak phosphate price environment,
weak demand in India and uncertainties in the potash market.
Agrium's profit for second-quarter 2013 (reported on Aug 7)
fell by double digits, hurt by cold weather in North America and
pricing pressure. However, both revenues and adjusted earnings
beat Zacks Consensus Estimates. The company witnessed higher
retail sales in the quarter. But weak global demand and pricing
continued to hurt its phosphate business.
Earnings estimates for Agrium are declining following the
release of second quarter results. The Zacks Consensus Estimate
for 2013 has gone down roughly 4% to $9.01 per share. The Zacks
Consensus Estimate for 2014 has also declined roughly 7% to $9.02
per share. With Zacks Consensus Estimates for both 2013 and 2014
going down, Agrium now has a Zacks Rank #5 (Strong Sell).
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 near future. The global phosphate market is
expected to remain weak, partly due to lower demand from India (a
major phosphate import market). Phosphate import is expected to
decline in India in 2013 and the next year due to the change in
subsidy and currency devaluation.
We also account for significant uncertainty in the potash
market following the recent exit of world's largest potash maker
Uralkali Group from one of the biggest potash cartels - the
Belarus Potash Company (BPC). Uralkali's move has triggered
industry-wide fear of a price war which may push potash prices
down and put significant pressure on fertilizer makers.
Other Stocks to Consider
Other companies in the basic materials sector with favorable
Zacks Rank are
KMG Chemicals Inc.
Sensient Technologies Corporation
). While Ferro retains a Zacks Rank #1 (Strong Buy), both KMG
Chemicals and Sensient Technologies retain a Zacks Rank #2
AGRIUM INC (AGU): Free Stock Analysis Report
FERRO CORP (FOE): Free Stock Analysis Report
KMG CHEMICALS (KMG): Free Stock Analysis
SENSIENT TECH (SXT): Free Stock Analysis
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