Potash Corp. (NYSE: POT - News) is the world's leading producer of potash and the world's largest fertilizer producer. The company has leverage to higher fertilizer application rates, higher crop plantings, increasing demand for biofuels 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 $250.
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 U.S. market. In response to the rising prices of potash products, the company has engaged in expansion and development of projects that will raise annual operational capacity to capture a significant share of the growth in global demand.
Global potash demand is expected to grow on average by more than 2 million tons annually. As a response to this, POT announced projects that will raise annual operational capacity to 15.7 million tons by the end of 2012.
Currently, the stock is trading at 20.1x our 2008 estimate of $11.03. Our target price of $250 is 22.7x our 2008 estimate.
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