If a chief executive officer leaves a company, should investors follow him out the door? For investors in Nutrien Ltd., NTR-T the Canadian crop nutrient producer formerly known as Potash Corp. of Saskatchewan, the initial answer is a resounding yes.
However, running away from this stock may be the wrong approach.
Nutrien announced on Tuesday that Mayo Schmidt stepped down as president and CEO, ending a brief nine-month stint as leader.
No reasons were given. However, it would be hard to blame the departure on the company’s recent performance in the stock market: Prior to Mr. Schmidt’s departure, Nutrien’s share price was up 52 per cent over the past 52 weeks, not including dividends. That is considerably more than twice the gain of the S&P/TSX Composite Index over the same period.
While the stock’s gains have trailed some competitors, such as Intrepid Potash Inc. (up 77 per cent over the past year as of Wednesday’s close) and Mosaic Co. (up almost 59 per cent), it is no slouch and it is unlikely lagging over leadership style.
Nevertheless, investors seemed reluctant to wait for a clear explanation for Mr. Schmidt’s departure, which followed a number of other executive shifts at the company. The stock price sank 4 per cent after the news broke, amid some frustration from analysts.
“Investors are likely to penalize Nutrien due to perceived dysfunction at the board and senior leadership levels. Accordingly, we expect the stock to come under pressure near term,” Ben Isaacson, an analyst at Scotia Capital, said in a note.
Clearly, corporate uncertainty can be bad for a stock. One recent example: Rogers Communications Inc. fell 8 per cent in the initial days of a leadership struggle at the telecommunications firm in October, when the chairman tried to dismiss the CEO.
But perhaps investors are placing too much importance in executive leadership.
Apple Inc.’s share price took a volatile turn 13 years ago amid concerns about the health of Steve Jobs, suggesting concern over whether the iPhone maker could maintain its edge without the drive and vision of its founder, who died in late 2011. Over the past 10 years, though, Apple’s share price has soared 1,142 per cent under the leadership of Tim Cook.
Similarly, Microsoft Corp. has fared well without founder Bill Gates, who stepped down as CEO in 2000. The share price is up 1,167 per cent over the past decade.
And take a look at Hydro One Ltd., where Mr. Schmidt was CEO before his ouster in 2018 by the new provincial leadership of Premier Doug Ford. Although the electric utility’s share price suffered under the political meddling and leadership uncertainty leading up to Mr. Schmidt’s departure, it has risen 70 per cent since mid-2018, outperforming other major Canadian utilities.
Even Rogers has already fully recovered from last year’s sell-off. Since chairman Edward Rogers prevailed in the leadership struggle and turfed CEO Joe Natale in November, the telecom’s share price has cruised to a four-month high. In retrospect, the October dip was a good buying opportunity for anyone capable of tuning out the drama.
Does that make Nutrien a table-pounding buy?
Prior to Mr. Schmidt’s departure, a number of analysts were upbeat about the company, citing high crop prices, low inventories of crop nutrients, a coming potash contract with China and the likelihood of strong free cash-flow generation through 2022.
Arguably, this upbeat picture hasn’t deteriorated.
While a lot of focus is on leadership change, “we think it is more constructive to focus on what we do know – Nutrien has a diverse and well-run asset base across the agriculture and fertilizer sector which is seeing some of the best market conditions in over 10 years,” Andrew Wong, an analyst at RBC Dominion Securities, said in a note.
No one likes uncertainty. But, ultimately, market conditions will drive the share price over the longer term.
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