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Agrium to Gain from Higher Demand, But Pricing a Concern - Analyst Blog

On Jun 11, we issued an updated research report on the fertilizer maker Agrium Inc. AGU.
 
Agrium's profit rose in the first quarter of 2015, reported on May 5, on strong margins in its Wholesale unit. However, adjusted loss missed the Zacks Consensus Estimate. Revenues fell year over year and missed expectations. Delayed start to the spring season in the U.S. affected the results. Agrium said that it expects to deliver strong results in the second quarter on solid crop input demand as the spring application season is fully underway.

Despite a few near-term challenges, Agrium is poised to benefit from overall healthy trends for the agriculture and crop input markets in the long haul. Agrium is expected to see healthy demand for crop protection products, providing strong support to its retail business.

Agrium also follows a strategy to grow along the value chain through a combination of acquisitions and organic development. The acquisition of Viterra's agri-products assets is an excellent fit to Agrium's portfolio, allowing it to offer highly competitive products, services and technologies. Moreover, the buyout of a controlling stake in agriculture biotechnology company Agricen reinforces the company's offerings of advanced plant health technologies.

Agrium also remains committed to boost shareholder returns. The company has hiked in its annual dividend by 12% to $3.50 per share from the prior payout of $3.12 per share. It aims to return 40%-50% of its free cash flow to shareholders.
 
However, the crop pricing environment is expected to remain soft in the near term which may unfavorably impact the crop input market. Moreover, nitrogen prices may be under pressure given the uncertainty surrounding Chinese export supplies. Agrium has narrowed its earnings per share guidance for 2015, partly based on the impact of increased Chinese urea exports on global urea prices.

While phosphate import is expected to improve in India (a major phosphate import market), uncertainty remains on timing and scale of import. Agrium also is also faced with issues such as logistical constraints and plant outages.

Agrium is a Zacks Rank #3 (Hold).

Other Stocks to Consider
 
Other companies in the basic materials space with favorable Zacks Rank include Celanese Corporation CE, Stepan Company SCL and Intrepid Potash, Inc. IPI. While Celanese and Stepan hold a Zacks Rank #1 (Strong Buy), Intrepid Potash retains a Zacks Rank #2 (Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
AGRIUM INC (AGU): Free Stock Analysis Report
 
CELANESE CP-A (CE): Free Stock Analysis Report
 
INTREPID POTASH (IPI): Free Stock Analysis Report
 
STEPAN CO (SCL): Free Stock Analysis Report
 
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