Canaccord Adams Bullish on Fertilizer Companies

It had to happen eventually, since the Canadian brokerages do everything in their power to get more business in the agriculture space, Canaccord Adams has initiated coverage on no less than seven fertilizer companies. Three of them are majors [Potash Corp. of Saskatchewan (POT), Agrium Inc. (AGU) , Mosaic Co. (MOS)] while the other four are juniors [Athabasca Potash Inc.(ABHPF.PK), MagIndustries Corp. (MAAFF.PK), PhosCan Chemical Corp. (PCCLF.PK), and Potash One Inc. (KCLOF.PK)]

The coverage is all coming from analyst Keith Carpenter, who is very bullish on the sector — in fact, he has a "buy" or "speculative buy" rating on every company except Athabasca Potash, which he rates a "hold."

Put simply, Mr. Carpenter figures that the fertilizer market (specifically potash and phosphate) will be robust for "years" into the future as people in developing countries change their dietary habits. "Supply will not be able to meet the growth in demand over the next five years," he wrote in notes to clients.

If anything about Mr. Carpenter's coverage stands out, it is his ultra-bullish stance on PotashCorp. He has slapped an unimaginable price target on the stock of C$425 a share! That makes him the first analyst to break the C$400 barrier on PotashCorp., though a number of them are now well over C$300.

He wrote:

Given the production profile, our view on fertilizer pricing throughout our forecast period, the firm's low operating cost and growth profile over the same period, PotashCorp. should be accumulating significant earnings, we believe unmatched by its peers.

Mr. Carpenter reached that price target by applying a multiple of 17 times to his earnings per share target for 2009 of C$25.21. Fp trading desk in seeking alpha