What The Buy Side Expects From PotashCorp

Jan.29.14 | About: Potash Corporation (POT)

Potash Corporation of Saskatchewan Inc. (NYSE:POT) is set to report FQ4 2013 earnings before the market opens on Thursday, January 30th. PotashCorp is the world's largest producer of potash and the third largest producer of nitrogen and phosphate. These nutrients are all of primary importance in the fertilization of crops. Within the past 6 months we have seen a large drop in the demand for Potash which has been a major challenge for the company. In December PotashCorp announced an 18% reduction of its labor force to help curb costs. The company said it is not expected these labor reductions to have a significant effect on output. Here is what the buy side expects from Potash on Thursday.

The information below is derived from data submitted to the Estimize.com platform by a set of Buy Side and Independent analyst contributors.

(Click Here to see All Estimates for Potash)

The current Wall Street consensus expectation is for Potash to report 33 cents EPS and $1.387B revenue while the current Estimize.com consensus from Buy Side and Independent contributing analysts is 34 cents EPS and $1.463B revenue. This quarter the buy-side as represented by the Estimize.com community is expecting Potash to narrowly beat the Street on profit and exceed on revenue by a wide margin.

The magnitude of the difference between the Wall Street and Estimize consensus numbers often identifies opportunities to take advantage of expectations that may not have been priced into the market. In this case we are seeing a small differential between the two groups' EPS forecasts and a wide margin on revenue predictions.

By tapping into a wider range of contributors including hedge-fund analysts, asset managers, independent research shops, students and non professional investors Estimize has created a data set that is up to 69.5% more accurate than Wall Street, but more importantly it does a better job of representing the market's actual expectations. It has been confirmed by an independent academic study from Rice University that stock prices tend to react with a more strongly associated degree to the expectation benchmark from Estimize than from the Wall Street consensus.

The distribution of estimates published by analysts on the Estimize.com platform range from 32 cents to 37 cents EPS and $1.401B to $1.500B in revenues. This quarter we're seeing a moderate distribution of estimates compared to previous quarters.

The size of the distribution of estimates relative to previous quarters often signals whether or not the market is confident that it has priced in the expected earnings already. A wider distribution of estimates signals less agreement in the market, which could mean greater volatility post earnings.

Throughout the quarter Wall Street lowered its EPS consensus from 51 cents to 33 cents and the Estimize consensus remained flat at 34 cents. On revenue Wall Street reduced its forecast from $112.127B to $1.387B while Estimize expectations also dropped from $1.496B to $1.463B. Timeliness is correlated with accuracy and falling expectations going into a report are often a bearish indicator.

The analyst with the highest estimate confidence rating this quarter is rajivgadda who projects 34 cents EPS and $1.495B in revenue. In the Winter 2014 season, rajivgadda is rated as the 9th best analyst and is ranked 66th overall among over 3,650 contributing analysts. Estimate confidence ratings are calculated through algorithms developed by deep quantitative research which looks at correlations between analyst track records and tendencies as they relate to future accuracy. In this case rajivgadda expects POT to report inline with Estimize on profit but rajivgadda has even more lofty revenue expectations.

This quarter analysts on the Estimize.com platform are expecting POT to beat Wall Street expectations by a small margin on profit and blew them out of the water on revenue. On Thursday we will see if labor cuts and reduced demand for potash will have as much effect as the sell side is forecasting or if PotashCorp will beat the Street's expectations as the Estimize.com community predicts.

Disclosure: None.