Potash: Record Levels of Namesake Nutrient Should Push This Stock Higher

Jan.29.07 | About: Potash Corporation (POT)

Higher prices for commodities such as corn could lead to more of these plants being planted. And this means healthy demand for fertilizer producers such as Saskatchewan’s Potash Corp. (NYSE:POT).

While record levels of Potash (its namesake nutrient) shipments helped give the company a strong boost and record fourth quarter profit, this is only the beginning, Merrill Lynch analyst Don Carson said in a research note.

He thinks the outlook is improving for all three of Potash’s fertilizer products, because global capacity for these nutrients are now near historic peak levels and will likely increase further in the next few years.

“With all potash producers running at capacity other than POT, most of the global incremental demand in coming years will be supplied by POT,” Mr. Carson said.

While trimming his 2007 earnings per share [EPS] estimate by 25¢ to $8, due to the higher provincial mining taxes that come with rising profits as well as depreciation expenses, Mr. Carson thinks Potash’s guidance of $6.25 to $7.25 will be easy to achieve. He expects the company’s operating profit will increase by 50% this year.

He has also introduced 2008 and 2009 EPS estimates of $8.75 and $9.50 respectively.

Mr. Carson has a $165 price target on shares of the fertilizer producer, representing upside of almost 15%, He has a “buy” rating on the stock.

RBC Capital Markets analyst Fai Lee also has a US$165 price target on Potash shares and an “outperform” rating.

POT 1-yr chart