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CIBC slashes outlook on Potash Corp, Mosaic


Market Blog's roundup of some of today's key analyst actions

CIBC World Markets analyst Jacob Bout has taken the knife to his long-term potash price forecasts, worried that supplies will be overwhelming a deteriorating demand outlook for the commodity.

As a result, his price targets for Potash Corp. and The Mosaic Co. were significantly downsized, and he trimmed his target on Agrium Inc. as well.

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"The continued deterioration in potash demand has resulted in pricing pressure in key markets such as China and Brazil," Mr. Bout said in a research note today in which he slashed his long-term price forecast by $100 to $450 per ton.

He believes global consumption of potash will slip to 53 million tons this year from 55.6 million last year, hurt by factors such as weakness in the India rupee, high local potash production in China at a time when imports are surging, and competitive pricing pressure in Brazil.

Potash Corp. already announced a four-week shutdown at its Lanigan mine in Saskatchewan than ran from Sept. 15 to Oct.13. Mr. Lout believes more curtailments will be needed in the industry.

And he sees less need for Potash to launch brand new projects going forward. "We believe underground Saskatchewan greenfield economics are less relevant for long-term pricing given the chronic oversupply situation in the potash industry," he said. He thinks the industry will be well supplied through 2020 given planned expansions to existing projects and less-expensive projects outside of Canada that can be built from scratch.

Downside: Mr. Bout cut his 12- to 18-month price target on Potash to $46 from $54 (U.S.) while reiterating a "sector performer" rating. For Mosaic, he cut his price target to $64 from $72 (U.S.) and reiterated a "sector outperformer" rating. Agrium saw its price target cut by $4 to $121 (U.S.), with a "sector outperformer" rating reaffirmed.


Toromont Industries Ltd., which supplies mobile equipment and industrial engines, is facing pressure on sales given that global macroeconomic concerns have mining companies pulling back on capital expenditures, said RBC Dominion Securities analyst Sara O'Brien. "We are more cautious on the theme of mining driving growth for TIH in the near to medium term," she said.

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Upside: Ms. O'Brien cut her price target by $2 to $22 and reiterated a "sector perform" rating.


GasFrac Energy Services Ltd., which fired its CEO and COO last month and announced plans for an operational review, "is taking some prudent steps to right-size its operations and get its core business back on track," said Raymond James analyst Andrew Bradford. But he thinks until the company finds a new top executive and resolves its debt problems -- which may not happen for months -- investors should be cautious.

Upside: Mr. Bradford cut his price target by $1 to $2 and reiterated a "market perform" rating.


North American Palladium Ltd. said the completion of a shaft at its LDI mine expansion has been delayed until the third quarter of next year. That's about half a year beyond what Raymond James analyst Alex Terentiew was expecting. He's turning more cautious on the stock amid renewed concern about its future balance sheet strength.

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Downside: Mr. Terentiew cut his price target to $2.75 from $3.25 but reiterated an "outperform" rating.


Canaccord Genuity analyst Dvai Ghose believes Shaw Communications Inc.'s fiscal fourth-quarter results and 2013 guidance on Oct. 25 will highlight the tough challenges the company is facing. These include continued loss of cable and broadband market share to telecoms, weak media results due to cyclical pressures in the advertising market, and anemic growth from its legacy satellite division.

Downside: Mr. Ghose reiterated a "sell" rating and $18 price target.


For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at#eyeonequities

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