PotashCorp: Zacks’ Bear of the Day Play

Saskatoon, Saskatchewan based PotashCorp (POTAnalyst Report) is the world’s largest fertilizer company by capacity. It produces potash, nitrogen and phosphate–the primary crop nutrients required to  maintain 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.

Weak Q1 Results and Lower Guidance

The company earned $75 million in the first quarter, down from $370 million in the same quarter, a year earlier. According the management, lower prices for fertilizers—primarily for potash and nitrogen–impacted results and led to a more subdued outlook.

Revenues for the quarter plunged 30% year over year to $1,076 million and missed the Zacks Consensus Estimate of $1,254 million. Adjusted EPS of $0.15 per share was a penny short of the Zacks Consensus Estimate, the company’s fifth consecutive miss as you can see from the following chart:

They now expect full-year 2016 earnings to be in the range of $0.60-$0.80 per share.

Industry Outlook—Short Term Outlook Remains Weak

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.

According to Zacks Industry Outlook, “potash prices, which are already at their lowest levels since 2007, remain under pressure due to elevated supply. The potash market is expected to remain oversupplied in the near future, thereby hurting prices. Moreover, depressed global energy prices and higher supply have also contributed to a softer nitrogen pricing environment.”

The Bottom Line

In addition to Zacks Rank #5 (Strong Sell), the company has Style Scores of “D” for Value, Growth and Momentum, resulting in a VGM Score of “F”. Further, the Zacks Industry Rank of 246 out of 265 (bottom 7%) indicates significant chances of underperformance in the short to medium term.

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