Remarks from a bullish analyst are helping fertilizer stocks gain on the S&P, but the outlook remains hazy.
Thomas Weisel initiated its coverage on the fertilizer industry today with a sector rating of Favorable. The analyst noted that though uncertainty remains, it appears that the industry may be nearing a cyclical bottom, and cited an attractive risk/reward ratio for its positive outlook. Fertilizer stocks are up across the board today, some by upwards of 3%.
As a whole, the Agricultural Chemical and Fertilizer Stocks Index is up by 1.8% today as major benchmarks trade relatively flat. Fertilizer stocks are now averaging 4.2% better than the S&P 500 over the last month.
The analyst also initiated individual coverage on four of the five largest U.S.-listed fertilizer companies. Mosaic (NYSE: MOS - News) and Potash (NYSE: POT - News) received Overweight rankings. Intrepid Potash (NYSE: IPI - News) was ranked Market Perform, and the firm's most pessimistic outlook was for Agrium (NYSE: AGU - News), which it ranked Underweight. All four are taking part in today's fertilizer rally.
China Green Agriculture (AMEX: CGA - News), Mosaic, and KMG Chemicals (NASDAQ: KMGB - News) are all up by more than 3% in the rally. The latter two have added 30% in the last month while China Green Agriculture has more than doubled.
There are some things to consider before diving into the fertilizer market on the Thomas Weisel recommendation. According to an August 11th report by Bloomberg, a weak monsoon season could weigh on the demand outlook for potash. Srikant Jena, India's minister of state for chemicals and fertilizers was quoted stating, "The drought situation is very bad and obviously demand for fertilizer will fall."
German salt and fertilizer company K+S AG saw its second-quarter operating profit plummet by -95%. The company said 2009 earnings would fall sharply according to Reuters. K+S chief executive Norbert Steiner said, "There is no sign yet of normalization of demand." Investors remained optimistic for the stock, sending shares up by more than 2% overseas.
Monsanto (NYSE: MON - News) was the sector's most popular stock among professional investors in the second quarter. 145 Pros counted the stock among their top-15 U.S.-listed equity holdings at the end of Q1.
As of this writing, the Agricultural Chemical and Fertilizer Stocks Index is one of the 35 cheapest tickerspy Indexes by P/E ratio, with an average of 13.6.
New 13F filings are starting to trickle in for Pro holdings at the start of Q3, so be sure to check tickerspy.com in coming weeks for additional coverage of Pro holdings across all industries.
Fun and informative, tickerspy.com is a free investing website where you can track multiple stock portfolios and compare against 250 proprietary Indexes tracking themes from nanotech to agriculture to precious metals. Best of all, tickerspy.com lets you spy on the portfolios of nearly 3,000 Wall Street institutions and hedge funds and see graphs of their performance. Try tickerspy.com today and find out how you stack up against investing legends like Warren Buffett!
Thursday, August 13, 2009
Wednesday, June 24, 2009
Food Industry Is Hungry For Profits
Companies fight to lure bargain-hunters with the best deals, but the strategy doesn't always do the trick.
ConAgra Foods is preparing to report fourth-quarter earnings on Thursday morning, but analysts warn the popularity of grocery stores' private-label brands could chew into profits. According to one stockpicker, however, the company's lower input costs are helping it close the pricing gap.
After grocery store operator Kroger announced a meaty 12.7% boost to first-quarter profits aided by its strong private-label business, which contributed 35% of the quarter's sales, investors questioned whether popular food lines are getting squeezed by bargain-hunting shoppers. UBS analyst David Palmer doesn't think this will be a problem for Omaha, Neb.-based ConAgra Foods ( CAG - news - people ), which does some private-label business but is largely driven by its popular brand portfolio that includes Chef Boyardee, Swiss Miss and Hunt's
According to Palmer, moderating input costs have resulted in narrowing price gaps between private-label and ConAgra products. On Tuesday, he upgraded the company to "buy" from "neutral" based on his belief that the company's improved execution has been undervalued by the market.
"We believe ConAgra should benefit from moderating inflation, improved innovation and pricing, a value-oriented portfolio and macro trends benefiting eating at home," Palmer said. "While we continue to think that additional investments need to be made in ConAgra's brands, we are encouraged by recent initiatives to do so, and do not believe our call depends on the company immediately becoming 'best in breed.' "
ConAgra shares closed Wednesday's trading session up by 25 cents, or 1.3%, at $20.03. Analysts polled by Thomson Reuters have been expecting fourth-quarter earnings of 41 cents a share and sales of $3.3 billion.
The food business has become increasingly competitive as companies fight to convince consumers that they provide the best values on everything from edibles to household basics
ConAgra Foods is preparing to report fourth-quarter earnings on Thursday morning, but analysts warn the popularity of grocery stores' private-label brands could chew into profits. According to one stockpicker, however, the company's lower input costs are helping it close the pricing gap.
After grocery store operator Kroger announced a meaty 12.7% boost to first-quarter profits aided by its strong private-label business, which contributed 35% of the quarter's sales, investors questioned whether popular food lines are getting squeezed by bargain-hunting shoppers. UBS analyst David Palmer doesn't think this will be a problem for Omaha, Neb.-based ConAgra Foods ( CAG - news - people ), which does some private-label business but is largely driven by its popular brand portfolio that includes Chef Boyardee, Swiss Miss and Hunt's
According to Palmer, moderating input costs have resulted in narrowing price gaps between private-label and ConAgra products. On Tuesday, he upgraded the company to "buy" from "neutral" based on his belief that the company's improved execution has been undervalued by the market.
"We believe ConAgra should benefit from moderating inflation, improved innovation and pricing, a value-oriented portfolio and macro trends benefiting eating at home," Palmer said. "While we continue to think that additional investments need to be made in ConAgra's brands, we are encouraged by recent initiatives to do so, and do not believe our call depends on the company immediately becoming 'best in breed.' "
ConAgra shares closed Wednesday's trading session up by 25 cents, or 1.3%, at $20.03. Analysts polled by Thomson Reuters have been expecting fourth-quarter earnings of 41 cents a share and sales of $3.3 billion.
The food business has become increasingly competitive as companies fight to convince consumers that they provide the best values on everything from edibles to household basics
Tuesday, June 23, 2009
Watch Potash Grow
The steep selloff in the fertilizer maker's stock has been wildly overdone.
SHARES OF Potash Corp. of Saskatchewan (ticker: POT) have plunged by about 25% in just the past week and a half. The world's largest maker of potassium-based fertilizer has cut production and capacity drastically in the face of a global recession and has suffered as traders book profits on recent gains made in the commodity complex.
Moreover, commodity prices fell sharply Monday after the World Bank cut its 2009 projection for world growth to a decline of 2.9% from a decline of 1.7%. And on Sunday, the International Monetary Fund's director said the IMF expects to cut its world growth outlook.
But make no mistake. The tiniest of green shoots might nourish the fertilizer maker's outlook. After gaining $2.76, or 3%, this morning, to $90.03, the stock fetches 14 times this year's expected $6.44 per share, and nine times 2010's $10 estimate.
The industry, including Potash, built up capacity enormously last year after several years of tight supply. That, along with rising fuel prices (natural gas is the biggest cost of production for Potash), was passed along to farmers in the form of a doubling of potash prices.
When the crisis hit, farmers, unable to get credit, held off on fertilizer use, idling capacity for Potash and everyone else.
Barrons.com writer Naureen Malik deftly anticipated Potash's fall, going negative on the stock in April of 2008, and then suggested picking up the shares around $69 last October, which turns out to have been a very good call.
There's room for more upside from here.
But Potash and the industry have been cutting production dramatically, and when an eventual upturn comes, economics can work in Potash's favor.
Just look at the first-quarter income statement for the three months ended in March: Sales fell 51%, while natural gas and transportation and freight costs all fell less sharply, resulting in a 73% year-over-year drop in gross profit. That implies profit can surge when farmers buy again, and buy they will.
Fertilizer is a global business, and food production can be expected to rise with global population growth and with economic development. Agriculture is expected to remain fairly robust in the coming decade according to the U.N.'s Organization for Economic Cooperation and Development, which put out a tome on the matter last week.
This is why it's important that Potash has investments in businesses in China, Chile, and other parts of the developing world, where fertilizer can help yield more from crops, from which everyone, producers and consumers alike, should benefit.
While the company expects fertilizer use to drop by 20% in the U.S. market, China, for example, is expected to increase fertilizer use this year.
After cutting 5.5 million tons of annual production since August, Potash's capacity is just one-fifth of the 47 million tons the entire fertilizer industry is expected to ship worldwide this year. That means tight supplies could cause prices to surge again when fertilizer use picks up, feeding Potash's cash flow.
With $2.8 billion in debt and $255 million in cash, Potash not only has the balance sheet to hold out till the market rebounds, it should be able to support its modest 10-cent-per-share dividend, which has steadily risen over the last two decades.
SHARES OF Potash Corp. of Saskatchewan (ticker: POT) have plunged by about 25% in just the past week and a half. The world's largest maker of potassium-based fertilizer has cut production and capacity drastically in the face of a global recession and has suffered as traders book profits on recent gains made in the commodity complex.
Moreover, commodity prices fell sharply Monday after the World Bank cut its 2009 projection for world growth to a decline of 2.9% from a decline of 1.7%. And on Sunday, the International Monetary Fund's director said the IMF expects to cut its world growth outlook.
But make no mistake. The tiniest of green shoots might nourish the fertilizer maker's outlook. After gaining $2.76, or 3%, this morning, to $90.03, the stock fetches 14 times this year's expected $6.44 per share, and nine times 2010's $10 estimate.
The industry, including Potash, built up capacity enormously last year after several years of tight supply. That, along with rising fuel prices (natural gas is the biggest cost of production for Potash), was passed along to farmers in the form of a doubling of potash prices.
When the crisis hit, farmers, unable to get credit, held off on fertilizer use, idling capacity for Potash and everyone else.
Barrons.com writer Naureen Malik deftly anticipated Potash's fall, going negative on the stock in April of 2008, and then suggested picking up the shares around $69 last October, which turns out to have been a very good call.
There's room for more upside from here.
But Potash and the industry have been cutting production dramatically, and when an eventual upturn comes, economics can work in Potash's favor.
Just look at the first-quarter income statement for the three months ended in March: Sales fell 51%, while natural gas and transportation and freight costs all fell less sharply, resulting in a 73% year-over-year drop in gross profit. That implies profit can surge when farmers buy again, and buy they will.
Fertilizer is a global business, and food production can be expected to rise with global population growth and with economic development. Agriculture is expected to remain fairly robust in the coming decade according to the U.N.'s Organization for Economic Cooperation and Development, which put out a tome on the matter last week.
This is why it's important that Potash has investments in businesses in China, Chile, and other parts of the developing world, where fertilizer can help yield more from crops, from which everyone, producers and consumers alike, should benefit.
While the company expects fertilizer use to drop by 20% in the U.S. market, China, for example, is expected to increase fertilizer use this year.
After cutting 5.5 million tons of annual production since August, Potash's capacity is just one-fifth of the 47 million tons the entire fertilizer industry is expected to ship worldwide this year. That means tight supplies could cause prices to surge again when fertilizer use picks up, feeding Potash's cash flow.
With $2.8 billion in debt and $255 million in cash, Potash not only has the balance sheet to hold out till the market rebounds, it should be able to support its modest 10-cent-per-share dividend, which has steadily risen over the last two decades.
Monsanto Is A Screaming ‘Buy’, Says Analyst
Investors will be closely watching results from Monsanto [MON 79.30 1.18 (+1.51%) ] Wednesday before the bell. What will they reveal about the ag trade?
It seems investors will be keen to see if Monsanto, the world's biggest seed maker, can show a clear path to greater profitability.
“I expect to hear their margins are doing better and better,” says BB&T analyst Frank Mitsch on Fast Money.
And Laurence Alexander of Jefferies is looking for profits of $1.20 per share slightly higher than the $1.18 per share average.
What’s the trade?
Alexander has a 'buy' on the stock but also says uncertainty will likely make the stock somewhat volatile and keep it fairly range bound.
That's practically bearish when compared to what Frank Mitsch tells the Fast Money desk. "Monsanto is a screaming buy at current levels," Mitsch exclaims.
I also love the name but I find it hard to determine a fair valuation, says Pete Najarian. However I’d say there’s much more upside to the stock than downside.
It seems investors will be keen to see if Monsanto, the world's biggest seed maker, can show a clear path to greater profitability.
“I expect to hear their margins are doing better and better,” says BB&T analyst Frank Mitsch on Fast Money.
And Laurence Alexander of Jefferies is looking for profits of $1.20 per share slightly higher than the $1.18 per share average.
What’s the trade?
Alexander has a 'buy' on the stock but also says uncertainty will likely make the stock somewhat volatile and keep it fairly range bound.
That's practically bearish when compared to what Frank Mitsch tells the Fast Money desk. "Monsanto is a screaming buy at current levels," Mitsch exclaims.
I also love the name but I find it hard to determine a fair valuation, says Pete Najarian. However I’d say there’s much more upside to the stock than downside.
Agrium extends deadline for CF Industries offer
CALGARY, Alberta (AP) -- Agrium Inc. said Tuesday it extended the deadline to acquire rival fertilizer company CF Industries Holdings Inc. after 62 percent of CF shareholders tendered their shares to the deal valued at more than US$4 billion.
The offer, which expired at midnight Monday, has been extended to July 22.
"CF stockholders have sent a resounding message to CF's Board that they support Agrium's offer," Agrium President and CEO Mike Wilson said in a statement."These are extraordinarily strong results, particularly given that CF's poison pill and other defense mechanisms are still in place and we urge CF's Board to respect this clear message from its stockholders."
Deerfield, Ill.-based CF Industries reiterated Tuesday that it thinks Agrium is undervaluing the company.
"Contrary to Agrium's assertions, the tender offer results do not change the facts that Agrium's offer substantially undervalues CF Industries, our shareholders do not support the price in the offer, and the offer has significant regulatory issues," said Stephen R. Wilson, chairman, president and CEO of CF Industries.
The company's board and management have consistently rebuffed Agrium's takeover attempt, despite two increases to its original bid. Last week, Agrium threatened to walk away if a "compelling majority" of CF Industries shareholders didn't show their support for a deal.
Canada-based Agrium is offering $40 per share, as well as a one-for-one share swap, an offer that it says represents a 59 percent premium to CF's closing price before the offer was first made public on Feb. 24.
RiskMetrics Group, an advisory firm, has recommended CF Industries' shareholders approve a deal with Agrium.
Meanwhile, CF Industries is trying to buy another fertilizer company, Terra Industries Inc., and has launched a fight to unseat that company's board. The Sioux City, Iowa, company has repeatedly rejected CF Industries' advances.
Shares of Agrium gained $1.85, or 4.8 percent, to close at $40.74, while CF Industries shares jumped $3.56, or 5.1 percent, to $72.88.
The offer, which expired at midnight Monday, has been extended to July 22.
"CF stockholders have sent a resounding message to CF's Board that they support Agrium's offer," Agrium President and CEO Mike Wilson said in a statement."These are extraordinarily strong results, particularly given that CF's poison pill and other defense mechanisms are still in place and we urge CF's Board to respect this clear message from its stockholders."
Deerfield, Ill.-based CF Industries reiterated Tuesday that it thinks Agrium is undervaluing the company.
"Contrary to Agrium's assertions, the tender offer results do not change the facts that Agrium's offer substantially undervalues CF Industries, our shareholders do not support the price in the offer, and the offer has significant regulatory issues," said Stephen R. Wilson, chairman, president and CEO of CF Industries.
The company's board and management have consistently rebuffed Agrium's takeover attempt, despite two increases to its original bid. Last week, Agrium threatened to walk away if a "compelling majority" of CF Industries shareholders didn't show their support for a deal.
Canada-based Agrium is offering $40 per share, as well as a one-for-one share swap, an offer that it says represents a 59 percent premium to CF's closing price before the offer was first made public on Feb. 24.
RiskMetrics Group, an advisory firm, has recommended CF Industries' shareholders approve a deal with Agrium.
Meanwhile, CF Industries is trying to buy another fertilizer company, Terra Industries Inc., and has launched a fight to unseat that company's board. The Sioux City, Iowa, company has repeatedly rejected CF Industries' advances.
Shares of Agrium gained $1.85, or 4.8 percent, to close at $40.74, while CF Industries shares jumped $3.56, or 5.1 percent, to $72.88.
Agrium extends deadline for CF Industries offer
CALGARY, Alberta (AP) -- Agrium Inc. said Tuesday it extended the deadline to acquire rival fertilizer company CF Industries Holdings Inc. after 62 percent of CF shareholders tendered their shares to the deal valued at more than US$4 billion.
The offer, which expired at midnight Monday, has been extended to July 22.
"CF stockholders have sent a resounding message to CF's Board that they support Agrium's offer," Agrium President and CEO Mike Wilson said in a statement."These are extraordinarily strong results, particularly given that CF's poison pill and other defense mechanisms are still in place and we urge CF's Board to respect this clear message from its stockholders."
Deerfield, Ill.-based CF Industries reiterated Tuesday that it thinks Agrium is undervaluing the company.
"Contrary to Agrium's assertions, the tender offer results do not change the facts that Agrium's offer substantially undervalues CF Industries, our shareholders do not support the price in the offer, and the offer has significant regulatory issues," said Stephen R. Wilson, chairman, president and CEO of CF Industries.
The company's board and management have consistently rebuffed Agrium's takeover attempt, despite two increases to its original bid. Last week, Agrium threatened to walk away if a "compelling majority" of CF Industries shareholders didn't show their support for a deal.
Canada-based Agrium is offering $40 per share, as well as a one-for-one share swap, an offer that it says represents a 59 percent premium to CF's closing price before the offer was first made public on Feb. 24.
RiskMetrics Group, an advisory firm, has recommended CF Industries' shareholders approve a deal with Agrium.
Meanwhile, CF Industries is trying to buy another fertilizer company, Terra Industries Inc., and has launched a fight to unseat that company's board. The Sioux City, Iowa, company has repeatedly rejected CF Industries' advances.
Shares of Agrium gained $1.85, or 4.8 percent, to close at $40.74, while CF Industries shares jumped $3.56, or 5.1 percent, to $72.88.
The offer, which expired at midnight Monday, has been extended to July 22.
"CF stockholders have sent a resounding message to CF's Board that they support Agrium's offer," Agrium President and CEO Mike Wilson said in a statement."These are extraordinarily strong results, particularly given that CF's poison pill and other defense mechanisms are still in place and we urge CF's Board to respect this clear message from its stockholders."
Deerfield, Ill.-based CF Industries reiterated Tuesday that it thinks Agrium is undervaluing the company.
"Contrary to Agrium's assertions, the tender offer results do not change the facts that Agrium's offer substantially undervalues CF Industries, our shareholders do not support the price in the offer, and the offer has significant regulatory issues," said Stephen R. Wilson, chairman, president and CEO of CF Industries.
The company's board and management have consistently rebuffed Agrium's takeover attempt, despite two increases to its original bid. Last week, Agrium threatened to walk away if a "compelling majority" of CF Industries shareholders didn't show their support for a deal.
Canada-based Agrium is offering $40 per share, as well as a one-for-one share swap, an offer that it says represents a 59 percent premium to CF's closing price before the offer was first made public on Feb. 24.
RiskMetrics Group, an advisory firm, has recommended CF Industries' shareholders approve a deal with Agrium.
Meanwhile, CF Industries is trying to buy another fertilizer company, Terra Industries Inc., and has launched a fight to unseat that company's board. The Sioux City, Iowa, company has repeatedly rejected CF Industries' advances.
Shares of Agrium gained $1.85, or 4.8 percent, to close at $40.74, while CF Industries shares jumped $3.56, or 5.1 percent, to $72.88.
Agrium to press forward with hostile CF bid
Agrium, a Canadian fertiliser maker, said on Tuesday that 62 per cent of the stock of US rival CF Industries had been tendered in support of its $3.85bn hostile takeover bid for the company.
Based on its ability to win support over a majority of CF’s shares through the tender offer, which had been set to expire on Monday night, Agrium said it would extend its deadline by another month in an effort to generate further backing.
But while Agrium said it was ready to meet immediately with CF to execute a binding merger agreement, it was not clear the results of the tender offer would compel such talks.
CF has consistently refused Agrium’s entreaties and opted to focus instead on its own hostile takeover bid for Terra Industries, a smaller US fertiliser supplier. It claims Agrium’s offer is an effort to distract its shareholders and scuttle the attempted transaction with Terra.
“Contrary to Agrium’s assertions, the tender offer results do not change the facts that Agrium’s offer substantially undervalues CF Industries, our shareholders do not support the price in the offer, and the offer has significant regulatory issues,” said Stephen Wilson, CF’s chief executive.
Agrium has little leverage to force a deal because CF has installed a “poison pill” anti-takeover provision that could make a hostile bid all but impossible to execute through a tender offer. Agrium also missed a deadline earlier this year to nominate directors to CF’s board, so it would have to wait until the company’s next annual meeting to launch a proxy context.
CF, furthermore, restructured its initial offer for Terra to eliminate a vote by its shareholders on that deal, making it more difficult for CF shareholders to voice their opinions on which deal the company should pursue.
Agrium had said it would continue to pressure CF into talks over a deal if a “compelling majority” of CF’s shares were tendered.
The offer currently consists of $40 in cash and one common share of Agrium for each share of CF, valuing CF shares at $79.58 as of midday on Tuesday. The shares were trading below that level at $71.58.
Based on its ability to win support over a majority of CF’s shares through the tender offer, which had been set to expire on Monday night, Agrium said it would extend its deadline by another month in an effort to generate further backing.
But while Agrium said it was ready to meet immediately with CF to execute a binding merger agreement, it was not clear the results of the tender offer would compel such talks.
CF has consistently refused Agrium’s entreaties and opted to focus instead on its own hostile takeover bid for Terra Industries, a smaller US fertiliser supplier. It claims Agrium’s offer is an effort to distract its shareholders and scuttle the attempted transaction with Terra.
“Contrary to Agrium’s assertions, the tender offer results do not change the facts that Agrium’s offer substantially undervalues CF Industries, our shareholders do not support the price in the offer, and the offer has significant regulatory issues,” said Stephen Wilson, CF’s chief executive.
Agrium has little leverage to force a deal because CF has installed a “poison pill” anti-takeover provision that could make a hostile bid all but impossible to execute through a tender offer. Agrium also missed a deadline earlier this year to nominate directors to CF’s board, so it would have to wait until the company’s next annual meeting to launch a proxy context.
CF, furthermore, restructured its initial offer for Terra to eliminate a vote by its shareholders on that deal, making it more difficult for CF shareholders to voice their opinions on which deal the company should pursue.
Agrium had said it would continue to pressure CF into talks over a deal if a “compelling majority” of CF’s shares were tendered.
The offer currently consists of $40 in cash and one common share of Agrium for each share of CF, valuing CF shares at $79.58 as of midday on Tuesday. The shares were trading below that level at $71.58.
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