Agricultural products and services company Agrium (AGU: Charts, News, Offers) recently impressed investors by increasing its second quarter guidance for the first half of 2011. The Calgary, Canada-based company, most widely recognized for its fertilizer products, raised its guidance for the current quarter from $3.38-$3.88 per share to $4.10-$4.40 per share. This puts Agrium on track to exceed its originally forecast earnings of $8.25 per share in fiscal 2011, which puts its forward P/E at 10.77 and has led analysts to raise their price targets on the stock above $100. The company serves a diverse customer base in North and South America and is also a part-owner of Canpotex, which manages all potash exports from Saskatchewan.
Daily Chart
Agrium currently earns an annual revenue of $11.6 billion and has a $13.1 billion market cap. The company has returned an average of 18.5% on equity over the past three years, and holds $447 million in cash and cash equivalents. The company produces all three of the essential farming nutrients – nitrogen, phosphates and potash – all of which have increased in value this year.
Agrium’s confidence is based on the rising prices in the fertilizer market caused by the increasing demand for agricultural commodities. The heightened demand for farm products has led to record prices in farm crops and high expectations for the fertilizer market. In particular, corn, which has been hitting record highs lately, requires large amounts of fertilizer. Fertilizer is of such paramount importance that last year China, Australia and Canada aggressively clashed over the proposed buyout of Potash of Saskatchewan (POT: Charts, News, Offers), which would have led to total Chinese control over the price of potash.
Global demand for food is expected to increase substantially as the global population increases substantially and available farmland decreases. The decreasing amount of available farmland has benefited fertilizer companies such as Agrium and its industry peer Mosaic (MOS: Charts, News, Offers), as well as biotech agricultural companies such as Monsanto (MON: Charts, News, Offers). Agrium and Mosaic help farmers maximize the output from their available farmland, while biotechs like Monsanto provide specialized seeds which can be used for more pest and weather resistant harvests. Inflation in emerging and developed markets is also expected to drive up prices further.
In the long term, wealthier nations are likely to increase the adoption of biofuels, which require large volumes of soybeans, sugar and corn, in order to escape the oppressive boot of OPEC and dwindling crude oil supplies. Although the U.S. Senate has voted to eliminate ethanol subsidies, the White House has vowed to retain some ethanol subsidies to aid the development of a biofuel infrastructure for next generation fuels, which should provide Agrium with support in the near term.
Although Agrium’s retail fertilizer sales are forecast to waver slightly in the second quarter, the company’s 750 farm stores – which sell fertilizer, crop chemicals and seeds directly to farmers – help offset this risk with diversification. Agrium also added 400 retail stores in Australia to expand overseas. Agrium’s supply chain business model – where the company earns profits from all steps between raw inputs and retail – is unique in its industry, whereas its rivals concentrate on only one or the other. Adverse weather conditions in the American Midwest have made little impact on retail sales at its farm stores, as previously feared.
CEO Michael Wilson stated that Agrium plans to more than double its annual EBITDA from its 2010 profit of $.4 billion to over $3 billion by 2015. Agrium’s top line has grown 28% annually, far higher than its closest competitors CP Industries (6% growth), PotashCorp (6%) and Mosaic (4%). Even though the stock is currently in rally mode, most analysts believe that the stock still has substantial legs to run – shares traded as high as $118 prior to the 2008-2009 financial crisis.
Other News About AGU
Agrium raises profit view, shares jump
Agrium rallies on increased profit view.
Agrium bumps up Q2 earnings forecast on strong retail performance, prices
Does Agrium still have legs to run?
Other Stocks in the News
Monsanto spent $1.4 million lobbying gov’t in 1Q
Monsanto’s interests remain immersed in Washington.
DuPont Becomes World’s First Thin Film Solar Module Manufacturer To Earn LEED Gold Rating
DuPont expands into solar power.
Copyright 2011 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc.
No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions.
We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.
Other relevant articles you may like
Leo Sun is long-time market follower and finance writer. He regularly contributes to the Stock of the Day analysis.
How will Agrium’s supply chain business model eventually impact the farm industry and what effects will that have on small farmers in East Texas?
The farming industry as a whole should benefit from advances in fertilizer and seed tech, and competition from peers and a leveling of the playing field due to higher competition could lower prices for small farmers. Although small farmers may be forced to follow one of the larger companies – such as Agrium and Monsanto – to benefit (this was thoroughly documented in “Food, Inc.”). In the end, farmers will be able to maximize the potential of the arable land and hopefully meet higher demand for grain crops (which is a long-term inevitability).