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Expecting a potash rebound, BMO upgrades Agrium

Mike Wilson, Agrium CEO


Less than a week ago, National Bank Financial issued a surprisingly bearish outlook for the fertilizer industry, and for Potash Corp. of Saskatchewan Inc. in particular, warning the cyclical sector is heading for a downturn.

BMO Nesbitt Burns Inc. has a different take entirely, issuing a fresh outlook today that includes upgrades of a handful of producers and a bullish outlook for the sector.

National Bank's Robert B. Winslow believed that recent weakness in grain prices, which can have a high correlation to demand for fertilizer, points to even further declines based on his expectations that supplies will outpace demand growth.

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But BMO analyst Joel Jackson contends demand for fertilizer, recently on the wane as customers deferred purchases, is set for a rebound in the first quarter ahead of spring planting.

Mr. Jackson forecasts potash prices to rise 5 to 10 per cent in 2012 from last year, although he sees urea nitrogen prices falling 3 to 5 per cent and DAP phosphate prices to fall 13 per cent.

"The potash industry has lost price momentum, but potash should outperform on price relative to nitrogen and phosphate in 2012 with slight price increases from current levels in 2012."

Overall, he expects market sentiment for agriculture, especially the U.S. corn market, to strengthen as continued moisture hinders development of crops in South America.

Meanwhile, he notes that most large-cap fertilizer stocks continue to trade well below historical valuations, even while agricultural prices and fertilizer costs relative to farmer revenues remain very attractive. "We believe these stocks are relatively oversold and should rebound as fertilizer demand re-emerges in a bullish ag environment."

Upside: Mr. Jackson upgraded both Agrium Inc. (price target $98 U.S.) and CF Industries Holdings Inc. (price target $194 U.S.) to "outperform" from "market perform."

And he reaffirmed Potash as an "outperform," with a price target of $61 (U.S.). While that's slightly lower than his previous target of $65, it's considerably more upbeat than National Bank's Mr. Winslow, who downgraded the stock to an "underperform" last week with a $39.50 (U.S.) price target.

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Monday's unexpected ousting of Nexen Inc.'s president and CEO Marvin Romanow by the company's board was a "drastic step" taken in order to close a long-standing valuation gap against peers, said UBS Investment Research analyst George Toriola. But he's not changing his targets on the stock.

Nexen's board also announced the departure of Gary Nieuwenburg, most recently executive vice president of Canada, and named former chief financial officer Kevin Reinhart as interim president and CEO.

"We see Kevin Reinhart as capable, knowledgeable about his business and very genuine," says Mr. Toriola. "We expect this to be well received by shareholders, while the company conducts a search for a new CEO."

Mr. Toriola sees lots to like about the energy company's fundamentals, including its oil-focused assets, near-term growth, improving performance of its Buzzard North Sea offshore project, and a stock price that he believes is trading at a significant discount to the sum of the company's parts.

Additionally, the pending start up of a project in Nigeria and the improved performance of its Buzzard North Sea offshore project lead him to believe the stock is currently attractively valued.

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Upside: Mr. Toriola reiterated his "buy" rating and $28.50 (Canadian) price target.


An attractive growth profile, low-cost operations, and significant exploration potential are three reasons why Raymond James Ltd. analyst Gary Baschuk is bullish on Alamos Gold Inc.

The company's fourth-quarter and 2011 operating results revealed a positive year, beating estimates on just about every aspect of the business, including production, revenue, and recovery.

Upside: Mr. Baschuk is maintaining his "outperform" rating and increasing his price target by 25 cents to $25.70 (Canadian).


Another quarter of double-digit growth for Richelieu Hardware Ltd. will be great for the specialty hardware manufacturer's balance sheet, less so for its stock price, according to National Bank Financial analyst Leon Aghazarian.

Mr. Aghazarian expects continued strong financial performance in the fourth quarter and is maintaining his positive bias on a company that has outperformed peers and is a leader in its class. But with the stock already having appreciated 17 per cent since third-quarter results in October, and the likely absence of any major near-term catalysts to propel it higher, he downgraded Richelieu to "sector perform" from "outperform."

Downside: Mr. Aghazarian reiterated his $32 price target.


Goldcorp Inc. provided 2012 production guidance of about 2.6 million ounces, slightly below that forecasted by UBS analyst Brian MacArthur, because of construction delays at the Pueblo Viejo project in the Dominican Republic and changes in mining at the Marlin mine in Guatemala. As a result, he cut his earnings per share estimates for 2011 through 2013.

Upside: Mr. MacArthur trimmed his price target by $2.50 (U.S.) to $64 and maintained a "buy" rating.

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