Friday, October 23, 2009 11:28 AM
Downbeat on Potash Corp.
David Berman
A couple of analysts have turned down their enthusiasm for Potash Corp. of Saskatchewan Inc. POT-N, with the fertilizer producer’s profits down sharply and potash pricing looking anything but clear.
Jacob Bout, an analyst at CIBC World Markets, cut his recommendation on the stock to “sector perform” from “sector underperform” – although he maintained his 12-month price target of $110 (U.S.).
“While we still like the fundamentals of agricultural industry and the outlook for the potash market over the next 3-5 years, we continue to have concerns about potash pricing and demand over the next 12-18 months,” Mr. Bout said in a note.
He noted that Potash Corp. is forecasting potash demand of 50 million metric tonnes in 2010, but demand could be substantially lower than that. For his part, he’s predicting demand of 47 million tonnes. In 2009, potash demand is estimated to be between 25 to 30 million tonnes – far below the 52 million tonnes used last year.
Potash Corp. has been hit hard by this declining demand – a big shift from last year, when many observers believed that farmers around the world simply couldn’t get enough fertilizer for their crops. This perceived supply-and-demand imbalance sent Potash Corp. shares up 340 per cent from the start of 2007 to their peak in mid-2008, when analysts were tripping over themselves with higher and higher price targets for the stock.
Meanwhile, Brian MacArthur at UBS maintained a “neutral” recommendation on Potash Corp., along with a price target of $95. (The shares trade in New York, as well as Toronto.) However, he cut his 2009 earnings estimate drastically, to $2.43 a share from $3.25 previously – representing a 25 per cent haircut. For 2010, he now estimates the company will report earnings of $6.50 a share from $7.50.
