On May 30, we issued an updated research report on Potash Corp. ( POT). While the fertilizer company should gain from a healthy demand environment in North America this year, it remains exposed to volatility in potash and phosphate pricing.
Potash Corp.’s adjusted earnings for first-quarter 2014, reported on Apr 24, topped the Zacks Consensus Estimate. Sales fell year over year but beat expectations. Lower pricing across all three nutrients dragged down the bottom line in the quarter. The company modestly raised its earnings and potash sales volume forecasts for 2014, factoring in stability in the potash market.
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 company has a strong geographic diversification and continues to invest in expanding its operational capability in potash.
The strain on the world's food supply is driving demand for all three nutrients of the company, especially potash. Given the tight potash supply in North America and Latin America, the demand for potash is expected to rise as buyers are now seeking to secure the product.
Potash Corp. expects global potash shipments in the band of 55 million to 57 million tons for 2014. It sees a strong recovery in potash demand in North America this year.
However, Potash Corp. is exposed to macroeconomic uncertainties and price volatility. Average realized potash price fell roughly 31% year over year in the first quarter on lower realizations. Pricing pressure was also witnessed across nitrogen and phosphate segments due to weak market fundamentals. These challenges may sustain in second-quarter 2014.
Moreover, demand for potash remains somewhat weak in India, a key market. Indian government’s move to trim potash subsidy levels coupled with local currency devaluation has resulted in lower demand in the country. A material recovery in demand is not expected in India in the near term.
Other Stocks to Consider
Other companies in the fertilizer and related industries with favorable Zacks Rank are Yara International ASA ( YARIY), Syngenta AG ( SYT) and Wilmar International Limited ( WLMIY). While Yara International retains a Zacks Rank #1 (Strong Buy), both Syngenta and Wilmar International sport a Zacks Rank #2 (Buy).