Agrium Inc. (NYSE: AGU - News) is growing through acquisition and incremental expansion of existing operations. The proposed UAP acquisition is likely to drive revenues and profits for Agrium on the back of expanded product line in the major business segment.
Supply/demand is strong for nitrogen and phosphate fertilizers, and the company has high leverage to increasing product prices. Strong prices for most of the major grains and oilseeds are likely to benefit the three business units of the company. The company also has significant free cash flow.
Global nitrogen capacity is expected to expand by about 5% in 2008, which could pressure pricing and margins. AGU is adding a 1.2M ton urea facility that should be completed by 2011. The company is a low-cost producer with 67% of its nitrogen capacity in Canada where it enjoys a $1 2/MMBtu discount to US Gulf natural gas. Nitrogen costs have risen by $150 per ton in recent quarters. Each $0.50/MMBtu increase in natural gas prices hurts earnings by $0.23 per share.
Agrium is trading at 13.7x our 2008 estimate of $4.60. We rate the shares a Buy with a target of $80. This is 17.4x our 2008 estimate. Zacks.com
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Wondering if you evaluate TRA. Please post only if its good. I think it values above 50. Thanks.
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