When farm equipment maker Deere reported first-quarter earnings two weeks ago, the stock price fell to a 52-week low, less than a month after the shares had posted an all-time high. The share price plunge was due in part to rising costs for farmers. Fuel, fertilizer and new equipment all cost more and the prices will be rising. The overall assessment is that farmers must buy fuel, fertilizers and other supplies before they will buy new equipment.
Analysts at Stifel recently issued an update on the fertilizer market and how that will affect three top fertilizer makers: Mosaic Co. (NYSE: MOS), CF Industries Holdings Inc. (NYSE: CF) and Nutrien Ltd. (NYSE: NTR). The firm’s analysts expect “a more normalized price environment trending [for]ward, though all is contingent on some return to normalcy, particularly in energy.”
Crop prices are expected to remain elevated due to weather-related supply constraints, and high fertilizer prices have led manufacturers to dust off old project plans to increase capacity. Stifel’s analysts note:
These projects certainly carry execution and timing risk, but we believe the significant disruption caused by the conflict in Ukraine and China’s indecisiveness as a marginal exporter is driving a shift for net importing countries to revisit projects that, while not necessarily economically competitive in normalized price environments, provide important security of supply. We plan to monitor this more closely.
Nutrien was formed in 2018 when a merger between two Canadian fertilizer makers (Agrium and Potash Corp. of Saskatchewan) created the world’s largest potash miner in a deal valued at around $36 billion, including debt. Stifel maintained its Buy rating on the stock while lowering its price target from $125 to $123. The stock traded at around $94 in the noon hour Friday.
In comments on their rating, the analysts noted:
We favor Nutrien for its high-quality and balanced exposure to fertilizer markets, given the firm’s significant assets in potash and nitrogen, as well as its defensive position in crop product retail. Nutrien is also unique in its strong pipeline of accretive “tuck-in” retail acquisitions, [its] potential for larger scale M&A transactions in Brazil [and its proven execution of] redeploying capital from recent significant divestments …
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Risks to the price target include commodity price risk, macro and geopolitical risk, management’s failure to execute on cost-savings plans, along with operational and regulatory risks to crop inputs.
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