Potash Corp. (POT) has leverage to higher fertilizer application rates, higher crop plantings, increasing demand for biofuels and rising crop prices. The company is located in low cost areas and its financials are solid. Hence, we rate the stock a Buy with a target price of $250.
On July 24, the company announced first-quarter earnings of $2.82 per share, an increase over the $0.88 per share earned in the same period last year. Fertilizer demand remained strong, fueled by the global need to increase food production and supportive crop commodity prices.
Potash Corp. enjoys significant cost advantage with regard to raw materials as all potash produced by the company in Saskatchewan is in the area, where extensive potash deposits are found. Moreover, the company has lower cost nitrogen operations in Trinidad as well as proximity to the US market.
Global potash demand is expected to grow on average by more than 2 million tons annually. As a response to this, POT announced projects that will raise annual operational capacity to 15.7 million tons by the end of 2012. We like POT's geographic diversity as 63% of potash volumes are sent offshore. The company has leverage to demand growth via more acres of US corn planted and higher fertilizer application rates offshore in BRIC countries.
Read the full analyst report on POT
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