Want To Play The Fertilizer Recovery? Buy Agrium

Jonas Oxgaard of Bernstein initiated coverage on Agrium Inc. (USA) AGU with an Outperform rating and price target of $119 on fertilizer recovery and retail expansion.

Oxgaard expects potash prices to rise from $250/tonne today to $275/tonne by mid-2018, eventually reaching $300–$325/tonne. The analyst forecast Chinese coal price to settle around $80, driving an expected U.S. urea price of about $300/tonne (up from $270/tonne today).

Street Underrates Strong Fertilizer Prices

Also, the analyst projects the retail share expansion strategy to finally realize growth in the next few quarters.

“Ag-retail EBITDA has been relatively flat in recent years as the EBITDA from newly acquired stores has been offset by declines in fertilizer profitability. As fertilizer prices strengthen, we anticipate same store sales/EBITDA to recover. We do not believe this is fully in consensus (even discounting any future fertilizer price increases),” Oxgaard wrote in a note.

Cash From PotashCorp For Retail Expansion

Moreover, the analyst expects the merger with PotashCorp should boost retail growth as the company could use PotashCorp cash flow to strengthen retail expansion.

“We anticipate a long-term acceleration of EBITDA growth in the retail segment, leading to additional multiple improvement,” Oxgaard added.

The analyst sees the next two earnings and deal closing as key catalyst to the shares.

Shares of Agrium closed Monday’s regular trading at $94.84. The price target of $119 represents a potential upside of 25 percent.

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