Pointing to “increasingly tight” crop fundamentals, Raymond James analyst Steve Hansen raised his financial expectations for Nutrien Ltd. (
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) ahead of Monday’s Investor Day event.
“By almost all accounts, global crop fundamentals have gone from ‘firming’ to ‘glaringly tight’ in recent months, with the prices of key bellwether crops all pushing multi-year highs on the back of compounding international weather events and a sudden reawakening of Chinese import demand,” he said. “Serendipitously, with North America coming off one of the largest (& earliest) crops on record, the set up for NA farmer income, fall application demand, and the 1H21 plant is similarly robust, in our view, a backdrop that bodes well for both crop input demand and, ultimately, NPK prices — which now appear to be responding.”
Seeing its stock as “cheaper than it looks,” Mr. Hansen raised his target for Nutrien shares to US$55 from US$48, maintaining a “strong buy” rating. The average is US$48.68.
“While the 28-per-cent rally in NTR shares since Oct. 1 may give some investors pause, we argue the stock still represents good value at current levels (it is more undervalued than it looks),” he said. “Our thesis is pretty simple: crop fundamentals and NPK prices have both shifted quickly, while Street estimates have not. In this context, we note the stock currently trades at 9.0 times our 2021 EBITDA estimate (vs. 10.0 times the Street mean), still an attractive metric given that we still remain early in the potash recovery cycle.”