Potash Corp.: Analysts Predict Downward Pressure

Sep.21.09 | About: Potash Corporation (POT)

With Potash Corp. of Saskatchewan Inc. (NYSE:POT) lowering its 2009 earnings estimates and 2010 outlook for demand last week, analysts are expecting downward pressure on the company's shares for the rest of the year.

Brian MacArthur, analyst with UBS, suggests U.S. and offshore buyers are still waiting to see if China will get an even lower contract price than India did when it agreed to US$460 a tonne with Russian producer Silvinit earlier this summer.

"The Indian contract has not been viewed as a market bottom," he said in a note Monday. "The late U.S. harvest and record yield prospects despite 30% lower potash use also lower 2009 demand prospects and the size of a 2010 rebound."

Last Friday, Potash Corp. revised its 2009 EPS to US$3.25-US$3.75 from US$4-US$5 while slashing its 2010 global demand forecast to 50 million to 55 million tonnes from 55 to 60 million tonnes.

UBS notes that Potash Corp.'s shipments in North America fell 65% in 2009, nixing expectations of a rebound in the third quarter.

"Soft demand trends have continued throughout the summer, making our demand forecast too optimistic," he said. UBS has cut its 2010 shipment forecast to 8.4 million tonnes from 9 million tonnes.

Fai Lee, analyst with RBC Capital Markets, also sees pressure on Potash Corp. in the near term but is more optimistic about a recovery in 2010.

"We believe long-term fundamentals driven by the constant need to improve food production will eventually outweigh current market challenges," Mr. Lee said in a note. "The magnitude of the expected rebound in 2010 will depend heavily on Chinese demand for potash."

RBC has dropped its EPS estimates in 2009, 2010 and 2011 to US$2.39, US$6.81 and US$8.52 from US$3.39, US$9.77, and US$9.81 respectively on the lower forecasting, while cutting its target price to US$110 from US$115.It maintains an Outperform rating with average risk, however.

Meanwhile UBS has also lowered its EPS forecast, to US$3.25 from US$3.95. Its Neutral rating and US$95 price target remain unchanged.