Potash Corp. (POT) to Gain from Healthy Demand, Expansion - Analyst Blog
On Mar 6, we issued an updated research report on Potash Corp. POT. While the fertilizer company should gain from a healthy demand environment this year and expanded operational capability, it is exposed to headwinds associated with weakening growth in markets outside of the U.S. and a potentially weaker nitrogen pricing environment.
Potash Corp.’s profit surged in the fourth quarter of 2014, reported on Jan 29, on higher potash volumes, improved nitrogen and phosphate pricing and increased contributions from offshore investments. Both sales and earnings topped the Zacks Consensus Estimate. Potash Corp. expects potash shipments of 58 million to 60 million for 2015, slowing from the record level of more than 61 million tons achieved in 2014.
Potash Corp., a Zacks Rank #3 (Hold) stock, has a competitive advantage stemming from its mining rights to the world's largest potash reserve. The strain on the world's food supply is driving demand for all three nutrients of the company, especially potash.
Potash Corp. is expected to gain from healthy demand for potash across major markets this year. It continues to invest in expanding capacity in its potash business. Higher operational capability across New Brunswick and Saskatchewan facilities is expected to offer the company with the flexibility to respond to market opportunities.
Better market conditions are also expected to lead to improved results in the company’s phosphate business this year. A shift to high-margin products coupled with an anticipated improvement in pricing are expected to boost phosphate gross margin.
However, Potash Corp. is exposed to macroeconomic uncertainties and price volatility. Sluggishness in markets outside of the U.S. is affecting the global outlook.
Reduced global energy prices and modestly softer agricultural fundamentals are also expected to contribute to a more tempered nitrogen pricing environment this year. Weak pricing is expected to lead to lower nitrogen margin in 2015.
Other Stocks to Consider
Other companies in the fertilizer industry with favorable Zacks Rank are Yara International ASA YARIY, Agrium Inc. AGU and CF Industries Holdings, Inc. CF. While Yara International retains a Zacks Rank #1 (Strong Buy), both Agrium and CF Industries sport a Zacks Rank #2 (Buy).
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