UBS Calls A Bottom On Fertilizer Markets, Raises Target On Agrium

Agrium Inc. (USA) AGU hosted an investor day last week, where it shared an important update of its business. In a report issued Monday, analysts at UBS pointed out that, given that the company is a large player in nitrogen (N), phosphate (P) and potash (K) markets, the data it provided could be seen as a proxy for the state of the overall fertilizer industry, which seems to have hit the bottom of a cycle.

“We believe that fertilizer markets are bottoming as Ag fundamentals and crop prices improve. The recent run-up in crop prices has improved sentiment on ag-related names and could bode well for farmers' income and willingness to spend on fertilizers going forward,” the report read.

It should be noted Agrium is a leader in North America in retail and wholesale of fertilizers, as well as a dominant player in other crop nutrients, pesticides, seeds and related products markets. Interestingly, the report noted, “wholesale fertilizer earnings appear to have bottomed and stable growth continues in retail earnings.”

Looking at the guidance that Agrium provided, UBS analysts consider the recovery will be slow but steady – as FCF is expected to hit $8 to $11 per share by 2020.

UBS reiterated a Buy rating on shares of Agrium, boosting their price target from $93 to $102.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.