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Terra Industries, Inc. (TRA) returned to profitability in the second quarter 2006, reporting EPS of $0.05 on $523.5 million in sales. Sales were boosted by better than expected corn plantings in May after a slow start for season due to poor weather conditions earlier this year. Gross profit margin was pulled down by $7.5 million in incremental costs to acquire ammonia due to the temporary production shutdown at the Billingham, U.K. facility.

Nonetheless, the profit margin of 6.2% was better than our expectation for a 3.3% margin. Terra and its partners have named their new Trinidad joint venture, First UAN. The trio of partners is currently negotiating with financing sources and engineering firms. The costs of both financing and construction have increased since development plans were first hatched three years ago.

Our revised sales and net loss estimates for 2006 are $1.9 billion and $15.2 million or $0.16 per share. Our 2007 estimates are unchanged, except that the recent reduction in shares outstanding due to the Company's repurchase of 2.0 million shares, improves 2007 EPS by a penny. We now estimates a net profit of $32.4 million or $0.34 per share on $2.1 billion in sales.

Our rating of TRA remains Hold, as the stock price seems near full valuation. We are maintaining our price target of $8.00. We regard Terra Industries as well positioned and well managed, yet given the challenging operating environment and subsequent to the recent price jump, we sound a cautionary note to investors seeking to expand or establish positions in TRA. In our most recent report on TRA dated July 28, 2006, we offer an updated trading guide for TRA.

TRA 1-yr chart:

Source: Terra Industries In the Black