Agrium Up 2%, But Well Off Day Highs as Credit Suisse Crunches The Numbers
Credit Suisse has lowered its estimates and target price (to US$108 from US$111), but kept an Outperform rating on Agrium Inc. ( AGU ), which is up 2% at $82.11 on the TSX, but well off a day high $83.04 struck earlier today.
Maintain Outperform on AGU. "Despite AGU's disappointing 2Q guidance, we maintain our constructive view on the fertilizer sector and AGU shares. The weaker-than-expected guidance is largely driven by unfavorable weather conditions and the potential impact on corn and cotton plantings, spring fertilizer applications, and nitrogen product mix, but these issues are temporary in nature. Fertilizer fundamentals remain strong, and AGU is well-positioned across the value chain. Realized margins in the first quarter were well above our expectations and reflect the robust fertilizer pricing environment, AGU's regional positioning in the higher-netback Western Canadian and Pacific Northwest markets, as well as the company's low-cost advantages in natural gas, sulfur, and ammonia. Retail also performed well on the back of strong farmer demand and higher prices."
All signs point to a strong 2011/12 fertilizer year. "Only limited volumes have been booked thus far for the second half, so the industry will get a fresh start for the next fertilizer year. Corn prices are likely to remain at levels that are highly profitable for farmers, which will incentivize them to plant more acres and apply more fertilizer and other crop inputs to maximize yields. Distributors will need to refill their pipelines from near-empty levels, and we expect to see robust fertilizer demand and a healthy demand-driven pricing environment in the second half of 2011."
Adjusting estimates. "We are reducing our 2011 EPS estimate from $8.25 to $8.03 to reflect lower fertilizer volumes, particularly in ammonia, due to unfavorable weather. Our revised estimates also factor in the impact from a stronger Canadian currency, higher energy costs, and planned maintenance turnarounds. We have also revised our 2012 and 2013 EPS estimates to $8.24 and $7.38 (from $8.53 and $7.95) respectively. Our target prices moves from $111 to $108."
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