Agrium Shares Are Ripe for Growth - Barron's

Now trading near $40 from a high of $113, fertilizer firm Agrium (AGU) was hit hard by the fall in commodity prices. On closer look, Barron's sees plenty of upside potential as fertilizer demand rebounds.

Fertilizer demand will likely pick up as the global economy improves, and in the meantime the company is expanding its network of over 870 retail farm centers in North and South America. The company is also in the midst of a hostile takeover bid for rival CF Industries (CF). Though CF rejected a sweetened offer by Agrium, proxy-advisory firm RiskMetrics/ISS says the deal may eventually happen.

By any measure, the stock is cheap. Agrium trades for just 6.8 times this year's expected earnings of $6.11/share and 5.8 times Wall Street's 2010 forecast of $7.14. This is well below other fertilizer stocks and significantly lower than the company's historic multiple of 14 times future profits. The shares trade at 1.0-1.5 times book value, less than half their five-year average.

CEO Mike Wilson notes global grain demand has increased steadily over the last 20 years, and the trend is likely to continue as emerging middle classes in countries like India and China develop a taste for grain-fed livestock. Wilson sees plenty of growth opportunity, even if the CF acquisition doesn't go through, and predicts a stronger second half on pent-up farmer demand.

Agrium is the third-largest potash producer in North America, and the leading agricultural-products retailer in the U.S. In addition to fertilizer, its farm centers sell products such as seeds and insecticides, making Agrium more than just a bet on fertilizer demand. The expanded retail network has given Agrium greater earnings stability and has shown management's skill at integrating acquired businesses.

Richard A. Kelertas, an analyst at Dundee Capital Markets, has a Buy rating on Agrium, and expects a 21% rise in the company's Toronto-listed shares over the next twelve months.
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Agrium: Q4 EPS of $0.79 beats by $0.15. Revenue of $1.985B (+33.0%) vs. $1.96B. (PR)
Agrium (AGU) launched a hostile, $72/share all-cash bid for CF Industries in February, representing a 42% premium on CF stock, conditional on CF dropping its bid to buy Terra Industries (TRA). In March, looking to build shareholder backing, Agrium boosted the cash portion of its hostile bid for CF by 10% - to $35/share from $31.70. Including stock, the offer valued CF at $74.90, but CF rejected the offer