Wall Street analysts tend to provide an updated look at the
companies they follow every month or two, ignoring
short-termissues and trends on a week-to-weekbasis . The good
thing is you can use this slow reaction to your benefit. When
major news hits the wires -- and analysts fail to even discuss it
-- you have an opportunity to seize the initiative before the
This notion was brought home on March 11 when Brazil's mining
announced it would abandon plans to pursue a $5.9 billion mining
project in Argentina that was set to produce potash, a key
fertilizer raw material. That mine had been intended to produce
more than 4 million tons of potash each year, but now rival
producers can breathe a sigh of relief. After all, smaller
industry output is always a positive for pricing.
The reduction in industry output is likely to lead to higher
pricing andprofit forecasts for
Potash of Saskatchewan (
, aiding industry supply-and-demand trends that were already
strengthening. Global demand for the fertilizer element cooled in
2012 as major buyers decided to whittle down inventories by
roughly 4 million tons, according to Potash of Saskatchewan. Yet
with inventories now at manageable levels, the company expects to
ship 55 million tons of the agricultural product this year, or
almost 4 million more tons than 2012. "Activity remains robust in
North and South America with demand picking up in SE Asia,"note
analysts at Merrill Lynch.
We'll have to wait until analysts get around to adjusting
their pricing and supply forecasts now that Vale is keeping that
extra expected supply off themarket . But even before that
change, analysts alreadyspot a looming upturn for Potash's key
metrics. Goldman Sachs, for example, says that demand for all
three of Potash's fertilizer products -- potash, potassium and
nitrogen -- are set to rebound in 2013 from 2012 levels. The
"rebound in operating rates in 2013 should drive a solidearnings
recovery," Goldman's analysts say.
Now that much of the company's capital spending programs are
nearing completion, the company is on the cusp of paying alot
more attention to dividends and buybacks. Thedividend was
recently boosted 33%, after rising more than 100% in 2011 and
2012. Asfree cash flow rises from here, more dividend hikes are
expected to be announced in the next few years. Analysts at
Goldman Sachs expect free cash flow to exceed $1.6 billion this
year, $2.5 billion in 2014 and approach $3.5 billion by 2015.
That kind of prodigious free cash flow may also fuel share
buyback programs. Potash managed to reduce the share count from
973 million in 2007 to 877 million in 2011, but didn't buy back
any moreshares in 2012. Now, with the reduced capital spending
and expected commensurate surge in free cash flow, more buybacks
may be in the offing.
Risks to Consider:
Firming potash prices might induce Brazil's Vale to restart
development plans for its stalled Argentinean mine, which might
keep a lid on pricing.
Action to Take -->
The dividend growth and share buyback that analysts expect
underpinsCredit Suisse's "buy"rating and $50price target on
thestock . "POT is well positioned to potentially return a
significant amount of capital to shareholders over the next 3
years," the analysts note.
By the time analysts digest news of Vale's mining changes,
estimates for Potash may move even higher. If you want to be
ahead of the crowd, now is the time to get into this stock.