Citi analyst P.J. Juvekar expects Nutrien Ltd. to see the benefits of strength in fertilizer pricing continuing in 2022 and projects upside in potash volumes.
Shares of Saskatoon-based Nutrien, which is the world’s biggest fertilizer company, rose 2.9 per cent on Thursday in response to an upbeat profit forecast for the year.
Benefitting from robust global demand, it is forecasting annual adjusted earnings per share between US$10.20 and US$11.80, above the consensus forecast of US$9.46 per share. It expects to sell 13.7 million to 14.3 million tons of potash this year, up from its record 13.6 million last year.
Nutrien bumps up potash production as rival copes with Belarus sanctions
“Our three key takeaways from the call: (1) The company anticipates constructive ag fundamentals, entering 2022 with significantly higher NPK prices,” said Mr. Juvekar. “NTR expects overall higher prices in 2022, e.g., the midpoint of Potash segment guidance implies prices up $200 per ton year-over-year based on similar cost profile. Retail EBITDA was indicated down 9 per cent year-over-year at midpoint due to higher costs and some demand pulled forward from 1Q22 in to 4Q21. (2) NTR again highlighted 4 million tons of additional flexible potash capacity, some of which could be brought online if the situation in Belarus persists. The company is likely to be conservative to avoid having to backtrack production increases. (3) On 2022 capital allocation, NTR plans to invest $1-billion in growth projects, including targeted Retail growth in the Brazilian market and Nitrogen brownfield expansions for environmentally efficient capacity (0.5 million tons). NTR plans to allocate $2-billion to share repurchases in 2022.
With its volume guidance and “continued strong” nitrogen, phosphorus, and potassium (NPK) prices, the analyst raised his financial expectations through 2024, leading him to increase his target for Nutrien shares to US$89 from US$84 with a “buy” recommendation. The average target is US$85.49.
“Our Buy rating on the shares reflects: 1) Segment diversification by fertilizer, and large exposure to the historically stable nitrogen fertilizer industry. 2) Retail segment, which provides additional earnings stability against the more cyclical fertilizer segments. The Retail segment continues to be an area of growth for NTR, especially its online platform. 3) Emphasis on shareholder return through both dividends and share repurchases. Management has proven itself to be effective capital decision makers, and has successfully executed and integrated M&A as well,” said Mr. Juvekar.
Others making target changes include:
* Scotia’s Ben Isaacson to US$90 from US$80 with a “sector outperform” rating.
* CIBC World Markets’ Jacob Bout to US$89 from US$86 with an “outperformer” rating.
* Berenberg’s Adrien Tamagno to US$90 from US$83 with a “buy” rating.