Positives Finally Mounting For Potash

Apr. 1.13 | About: Potash Corporation (POT)

Potash (NYSE:POT) has been a poorly performing stock over the last two years. The huge fertilizer maker has been stuck in a range of between $38 to $45 a share for more than the year. However, the company is still well-positioned to benefit from the long term secular trend of the fast growing emerging markets being able to afford a more protein based diet. This means more grain will be required to feed livestock and therefore more demand for fertilizer. The stock is near its long term technical support level and the stock has actually garnered a few positive catalysts recently. Value investors should take a hard look at the stock. It is cheap and also provides a solid dividend yield.

Recent positives for Potash:

  • JP Morgan analyst Jeffrey Zekauskas just upgraded the shares to "Overweight" from Neutral. He cited the company's improved investment prospects for the upgrade. He further states the replacement value of the company's assets is $56 a share. It was the first upgrade of the stock since June 2012.
  • BMO Capital believes the fertilizer trade is turning to potash/phosphate producers rather than nitrogen producers which is bullish for POT.
  • Credit Suisse (Outperform rating, $50 Price Target) noted a few weeks ago that the company's expansion programs are on track and are more than 80% complete. The analyst firm believes Potash will be able reduce its cap-ex budget by some 30% after this fiscal year (over 24 months) which will have significantly positive impacts on cash flow and earnings.
  • After falling for months, consensus earnings estimates for both FY2013 and FY2014 have ticked up over the last month.

Potash Corporation together produces and sells fertilizers and related industrial and feed products primarily in the United States and Canada.

4 additional reasons POT is a good value pick up at under $40 a share:

  1. The stock yields nearly three percent (2.9%) and the company has tripled its dividend payout over the past two years. Potash also has an A- rated balance sheet.
  2. POT is selling near the bottom of its five year valuation range based on P/E, P/S, P/CF and P/B.
  3. The stock sells for less than 12x 2014's projected earnings. S&P has a "Buy" rating and a $52 price target on the shares.
  4. The stock has strong long term technical support at just under the current price level (See Chart).

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Disclosure: I am long POT. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.