Skip to main content

The Globe and Mail

National Bank warns investors to stay clear of Potash Corp.

National Bank Financial analyst Robert B. Winslow has initiated coverage on Potash Corp. of Saskatchewan Inc. with a surprisingly bearish tone, warning that the stock is likely to fall further and that consensus Street earnings estimates are way overblown.

His contrarian stance doesn't reflect his views on the company's management or assets; rather, he called it a "cyclical call on a cyclical stock," expecting significant weakness in coming months in the fertilizer market.

Grain prices, which can have a high correlation to demand for fertilizer, have recently come under pressure and Mr. Winslow expects this trend to continue.

Story continues below advertisement

"Our correlation analysis suggests the company's fiscal 2012 net sales and gross margins will migrate lower year/year, owing to the material decline in grain prices in late 2011 plus prospects for further price declines, driven by rising grain stock-to-use monthly 2011/12 forecasts," he said in a research note today.

He doesn't expect a turnaround anytime soon. He forecasts global potash supply will increase more than demand through 2020, which should moderate "medium-term" potash prices.

He predicts fiscal year 2012 earnings per share to decline to $2.70 (U.S.) from $3.58 in 2011. The Street consensus, according to Thomson One, is $4.25. "Barring negative supply shocks that might otherwise drive a strong rally in grain prices, we expect prices in 2012 to be much lower than those of 2011, driving a year/year decline in earnings per share."

Potash stock has already been under pressure in recent months and has largely underperformed both grain prices and peers. But Mr. Winslow argues that investors should not take this as a sign that the share price is already reflecting a weakening outlook.

Downside: Mr. Winslow rates Potash as an "underperform," with a $39.50 (U.S.) price target.


RBC Dominion Securities Inc. analyst Robert Stallard downgraded Lockheed Martin Corp. to "underperform," warning of another challenging year for the military sector as big cuts loom at the U.S. Department of Defense.

Story continues below advertisement

Lockheed Martin is the largest U.S. defence contractor, an uneasy position to be in given the expected U.S. budgetary reductions and persistent uncertainty as to what exactly the cuts will be and when they will occur.

If Congress does not pass fresh legislation - which doesn't seem out of the question given this is an election year - the department is facing an across-the-board 23 per cent budget cut in fiscal 2013.

Meanwhile, Lockheed has been attracting investors and outperforming its peers because of its unequivocal commitment to paying a good-sized dividend, with the stock currently yielding close to 5 per cent. But this advantage, Mr. Stallard argues, is likely to ebb.

"As the pay out of other defense companies starts to match Lockheed, we see less justification for a premium valuation," Mr. Stallard said in a research note. "Although we still expect the dividend to set a floor for the stock, we see negative defense news flow capping the upside from here."

Downside: Mr. Stallard, who previously rated the company as a "sector perform," raised his price target by $6 to $80 (U.S.) as he rolled forward his earnings models for the sector to 2013.


Story continues below advertisement

Sales trends at Sears Canada Inc. have been poor for years. But they are now being exacerbated by external factors: weak consumer spending and winter's lack of bite in major Canadian population centres, which can impact sales of high-margin seasonal apparel, notes Desjardins Securities Inc. analyst Keith Howlett. "Sears Canada's shares are only appropriate for value investors who are comfortable awaiting an event-driven return on investment," such as a take-out of the minority shareholders by parent Sears Holdings or a major restructuring that include store sales, he said.

Downside: Mr. Howlett cut his price target by $1.50 to $13.50 and maintained a "hold" rating.


Constellation Software Inc. has adopted a regular quarterly dividend of $1, representing a 100 per cent increase from dividends paid in 2011 on an annualized basis. Versant Partners analyst Tom Liston said he's "encouraged" by the move and expects the company to continue to generate significant shareholder value through consistent growth in cash flows, largely through its "savvy and disciplined acquisition strategy."

Upside: Mr. Liston raised his price target by $10 to $92 and maintained a "buy" rating.

Related: Constellation review ends with no sale


Jennings Capital Inc. upgraded Labrador Iron Ore Royalty Corp. to "buy" from "hold," noting the company is poised to generate more cash, and possibly raise its regular dividend, thanks to expanding production at its 15.1 per cent owned Iron Ore Company of Canada. Output at Iron Ore Company is expected to grow to 23.3 million tonnes, from roughly 18 million tonnes, by the end of 2012.

Upside: Jennings Capital's Peter Campbell raised his price target to $42.75 from $30.

Report an error Editorial code of conduct Licensing Options
As of December 20, 2017, we have temporarily removed commenting from our articles. We hope to have this resolved by the end of January 2018. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to If you want to write a letter to the editor, please forward to