Saskatoon, Saskatchewan based PotashCorp (POT – Analyst Report) is the world’s largest fertilizer company by capacity. It produces potash, nitrogen and phosphate–the primary crop nutrients required tomaintain healthy and productive soils. They have operations in seven countries and their products are sold throughout the world, including North American, Asian and Latin American markets.
Dismal Results; Dividend Slashed
Weak global demand and declining prices for potash have created a challenging operating environment for the company. They reported their Q4 results in January end. Both earnings and revenues missed the Zacks Consensus Estimates. They suspended operations at their New Brunswick mine to cut costs and also cut their quarterly payout to 25 cents a share from 38 cents earlier.
The management expects weak fertilizer prices to continue to hurt their results this year.
Industry Outlook—Short Term Outlook Remains Challenging
Global population and the need for food are rising rapidly. Further, the demand for better quality food is surging with rising middle class in many developing countries. As most of the population growth is in countries where there is little room for expansion of arable lands, the need for fertilizers and other resources used for increasing crop yield will also continue to increase.
Thus looking at the longer-term, there is a case for investing in agriculture and fertilizer stocks.
But the near-term outlook remains cloudy due to oversupply, weak demand and falling prices. While some of the major grain prices have seen a nice rebound of late after falling to their multi-month lows earlier this year, the stockpiles remain high. US farm income is expected to fall to its lowest level since 2002.
The Bottom Line
In addition to a Zacks Rank #5 (Strong Sell), the company has Style Scores of “D” for Value and “C” for both Growth and Momentum, resulting in a VGM Score of “D”. Further, the Zacks Industry Rank of 251 out of 265 (bottom 5%) indicates significant chances of underperformance in the short to medium term.
