The Potash Corporation of Saskatchewan, Inc. (NYSE: POT - News) is a Canadian corporation based in Saskatoon, Saskatchewan that is the world's largest producer of potash as well as the world's largest fertilizer producer. The company has leverage to higher fertilizer application rates, higher crop plantings, increasing demand for bio-fuels and rising crop prices. The company is located in low-cost areas and financials are solid. Hence, Potash Corporation enjoys significant cost advantage with regard to raw materials.
All potash produced by the company in Saskatchewan is in the area, where extensive potash deposits are found. Moreover, the company has lower cost nitrogen operations in Trinidad due to the long-term, lower-cost gas contracts with Natural Gas Company of Trinidad and Tobago Limited as well as proximity to the US market. In response to the rising prices of potash products, the company is engaged in expansion and development of projects that will raise annual operational capacity to capture a significant share of the growth in global demand.
Currently, the stock is trading at 21.4x our 2008 estimate of $8.31. The company has leverage to higher fertilizer application rates, higher crop plantings, increasing demand for bio-fuels and rising crop prices. The company is located in low cost areas and financials are solid. Hence, we rate the stock a Buy with a target price of $200. This is 24.1x our 2008 estimate.
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