Weak 2014 guidance means potash (T.POT) stock valuations may be getting stretched

Stockhouse Editorial
0 Comments| January 31, 2014


The following is an excerpt from Canaccord Genuity's Morning Coffee newsletter.

Potash Corp. of Saskatchewan Inc.
(TSX: T.POT, Stock Forum) (NYSE: POT, Stock Forum) traded lower after the fertilizer giant reported fourth quarter 2013 results and provided a weak 2014 guidance.

In early afternoon trading Friday, the stock was off 0.34% to $34.77, leaving a market cap of $29.8 billion, based on 856.1 million shares outstanding. The 52-week range is $45.13 and $29.67.

Fourth quarter earnings per share of US$0.31 compared with Canaccord Genuity analyst Keith Carpenter’s estimate of US$0.33, consensus of US$0.32 and guidance of US$0.23-0.43.

The company provided 2014 earnings per share guidance of US$1.40 to US$1.80. That compares to Carpenter’s and a consensus estimate of US$2. First quarter 2014 guidance was provided at US$0.30-US$0.35 versus consensus of US$0.45.

Potash Corp. offered 2014 potash industry guidance of 55-57 million tonnes, compared to an earlier estimate of 55-58 million tonnes.

Management guidance for Potash Corp.’s potash sales volumes of 8.2-8.6 million tonnes. Carpenter was at 8.9 million tonnes, based off of a 56 million tonne year, which would equate to 15.9% of industry sales, below historical percentages, but above that of the past few years.

To get to that figure, Carpenter had assumed Potash Corp. (and Canpotex) would have to be more aggressive in securing sales, and in doing so, would have to be more aggressive on price.

Given their volume guidance, they do not intend on being as aggressive as Carpenter would have anticipated. Carpenter believes potash equity valuations are stretched.

He has commented over the past several weeks that the market was getting too aggressive on valuations of the potash equities, based on the assumption that the Russian cartel would most likely re-form (leading to higher prices) and that potash pricing was poised to move higher.

Carpenter expects the cartel to exist again, while he believes that potash pricing has found a bottom here, but given the oversupply situation, he does not believe that prices will move materially higher in 2014 (regardless of whether or not the Russian cartel exists), also in light of the muted grain and oilseed pricing backdrop.

Carpenter continues to prefer Monsanto Co. (NSYE: MON, Stock Forum) and Agrium Inc. (TSX: T.AGU, Stock Forum) on a relative basis to the potash equities of Potash Corp. and Mosaic (MOS). Conpotex is an international marketing arm, owned by Potash, Mosaic Company (NYSE: MOS, Stock Forum), and Agrium Inc. (TSX: T.AGU, Stock Forum).

Tags: AGRICULTURAL INPUTS AGRICULTURE

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