Scotia Capital analyst Ben Isaacson recommends investors build an overweight position in Nutrien Ltd. (NTR-N, NTR-T), raising his recommendation to “sector outperform” from “sector perform.”
In a research note titled Buy Nutrien: How the Risk/Reward Tilted to the Long Side, he reaffirmed his bullish stance on nitrogen and now sees a shift in sentiment toward the Saskatoon-based company.
“Investor conversations on NTR are have transitioned to bullish from bearish: (1) the ‘hot’ generalist money that poured into the space when tech valuations imploded and during the emergence of the Russia/Ukraine conflict are long gone. In other words, we don’t see imminent selling pressure on NTR like we did when we downgraded the stock; (2) investors, both inside and outside of Canada, are now suggesting NTR as the best way to play ag in H2,” said Mr. Isaacson. “Rightly or wrongly, their investment criteria includes: fertilizer diversification (#1), valuation gap, macro/recession hedge, with a commodity catalyst kicker; and (3) NTR could see market sentiment lift if NTR’s nitrogen margin guidance reduction proves to be too Draconian – we’re on the fence on this one. Overall, sentiment is turning bullish as we transition from the off-season to the size of fall demand as well as positioning for ‘23.”
Seeing “strong valuation support” for Nutrien, he cut his target to US$110 from US$118. The average on the Street is US$110.09.
“We estimate NTR is worth $110 to $115 per share, using our and NTR’s mid-cycle EBITDA estimates, respectively,” he said. “Based on our math, NTR’s mid-cycle EBITDA has meaningfully improved to $7.5B from $5.5B previously . Applying this to NTR’s five-year average multiple of 8.5 times, the implied price value is $110. In NTR’s June update, the company put forth a mid-cycle EBITDA estimate of $9.2-billion, using a volume scenario in ‘25. The implied price value using NTR’s math is $139 per share; however, when discounting the amount back to today for an apples-to-apples comparison, we derive a price value of $115 per share.”