Agrium Inc. (NYSE: AGU - News) is growing through acquisition and organic expansion of existing operations. The proposed United Agri-Products (UAP) acquisition is likely to drive revenues and profits on the back of an expanded product line in the major business segment.
Margins should be elevated for at least 2-3 years as supply/demand is expected to remain good for phosphates, nitrogen and potash through 2011. The company is highly leveraged to increasing product prices. Strong global prices for these products are likely to benefit all its 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 $118.00.
From the UAP acquisition, the company expects synergies of approximately $18 million, $80 million and $115 million from 2008 to 2010. Recently, Agrium concluded the acquisition of 70% interest in Common Market Fertilizers S.A, which is expected to increase the company's purchase-for-resale business by close to 2.5 million tons on annually.
Agrium plans to expand its retail operations in South America through organic growth and greenfield expansion. The company will target large farmers, who want a one-stop shop for fertilizer, chemicals, seeds as well as application services for the inputs. The company also restarted its smaller Redwater #1 ammonia plant late in the first quarter..zacks.com
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