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Potash Corp. Cut to Strong Sell - Analyst Blog

Posted
3/20/2014 1:50:00 PM
By: Zacks.com
Referenced Stocks:CYT;DOW;MEOH;POT

On March 19, Zacks Investment Research downgraded fertilizer company Potash Corp. of Saskatchewan, Inc. ( POT ) to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Potash Corp. posted tepid fourth-quarter 2013 results on Jan 30. Its profit for the quarter slid roughly 45% year over year, hurt by severance-related charges and lower pricing across all three nutrients - potash, nitrogen and phosphate.

Adjusted earnings of 31 cents per share fell short of the Zacks Consensus Estimate by a couple of cents. Revenues fell roughly 6% year over year to $1,541 million, but surpassed the Zacks Consensus Estimate of $1,388 million. Revenues fell as higher sales volume was more than neutralized by lower pricing.

Earnings estimates for Potash Corp. are on the downswing following the release of the fourth quarter results. The Zacks Consensus Estimate for 2014 has gone down 20.5% to $1.63 per share as most of the estimates were revised downward. The Zacks Consensus Estimate for 2015 has also declined 10.3% to $2.00.

While Potash Corp. will benefit from strong geographic diversification and expanded operational capability in potash, it remains exposed to volatility in potash and phosphate pricing.

Average realized potash price fell roughly 27% year over year in the fourth quarter, hit by competitive pressure across all markets. Pricing pressure was also witnessed across Nitrogen and Phosphate segments. These challenges may sustain in the near term.

Moreover, demand for potash and phosphate remains somewhat weak in India, a key market. Indian government's move to trim potash subsidy levels coupled with local currency devaluation is affecting demand in that country. A material recovery in demand is not expected in the short term.

Other Stocks to Consider

Other companies in the broader basic materials sector with favorable Zacks Rank are Methanex Corporation ( MEOH ), Cytec Industries Inc. ( CYT ) and The Dow Chemical Company ( DOW ), all with a Zacks Rank #2 (Buy).



CYTEC INDS INC (CYT): Free Stock Analysis Report

DOW CHEMICAL (DOW): Free Stock Analysis Report

METHANEX CORP (MEOH): Free Stock Analysis Report

POTASH SASK (POT): Free Stock Analysis Report

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