Agrium (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.
The company recently announced the $2.7 billion UAP acquisition. In the retail business, the company has a market share of 16% after the acquisition of UAP. An amount of $115 million in synergies may be achieved from the UAP retail acquisition by 2010.
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. Agrium also has significant free cash flow.
As a result, we rate the shares a Buy with a target of $89.00. This is 16.2x our 2008 estimate. Agrium is trading at 15.0x our 2008 estimate of $5.51. The company is growing through acquisition and incremental expansion of existing operations.
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