Still Underperform on Potash Corp. - Analyst Blog


On Nov 25, we reaffirmed our Underperform rating on leading fertilizer company Potash Corp. of Saskatchewan, Inc. ( POT ) following its lackluster third-quarter 2013 results. Our view reflects the weak price environment and a still challenging demand scenario in India.

Why Reaffirmed?

Profit for the third quarter, reported on Oct 24, slid roughly 45% year over year, hurt by lower pricing across all three nutrients. Revenues fell by double digits on lower potash volume. Earnings matched the Zacks Consensus Estimate while sales missed. Potash Corp. cut its earnings forecast for the full year taking into account the soft pricing environment.

Estimates for Potash Corp., a Zacks Rank #4 (Sell) stock, are on the downswing following the release of the third quarter results. The Zacks Consensus Estimate for 2013 has gone down roughly 12% to $2.13 per share as all estimates were revised downward. On a similar note, the Zacks Consensus Estimate for 2014 declined roughly 13% to $2.11.

While Potash Corp. will benefit from strong geographic diversification and expanded operational capability in potash, it is exposed to macroeconomic uncertainties and price volatility. Average realized potash price fell roughly 28% year over year in the third quarter on competitive pressure and cautious buyer behavior. Pricing pressure was also witnessed across nitrogen and phosphate units.

Potash Corp. is also seeing somewhat weak potash demand in India, a key market. Indian government's move to trim potash subsidy levels coupled with higher retail pricing and local currency devaluation resulted in lower demand in the country. These challenges may sustain through the balance of 2013.

We also account for the uncertainty in the potash market following the exit of world's largest potash maker Uralkali Group from one of the biggest potash cartels - the Belarus Potash Company (BPC).

Other Stocks to Consider

While we prefer to avoid Potash Corp., other companies in the fertilizer and related industries with favorable Zacks Rank are The Scotts Miracle-Gro Company ( SMG ), China Bluechip ( CBLUY ) and The Andersons, Inc. ( ANDE ). All of them retain a Zacks Rank #2 (Buy).

ANDERSONS INC (ANDE): Free Stock Analysis Report

POTASH SASK (POT): Free Stock Analysis Report

SCOTTS MIRCL-GR (SMG): Free Stock Analysis Report

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Zacks Investment Research

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.

This article appears in: Investing , Business , Stocks

Referenced Stocks: ANDE , POT , SMG

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