The demand for fertilizer has historically been driven by the demand for corn, which has increased. This demand should play favorably for companies that produce fertilizers. I will take this opportunity to discuss five fertilizer companies that are all being impacted by an increased demand for fertilizer. I will make recommendations for each stock based on the information below:
CF Industries Holdings (CF): Shares are trading around $177, which is within the company's 52-week range of $115.34 and $192.70. Its market capitalization is $11.7 billion and its earnings per share were a strong $18.18.
The company's fourth quarter 2011 earnings set many records. Net earnings were $438.9 million, or $6.66 per diluted share. That's up from $200.3 million or $2.78 per share in the fourth quarter of 2010. The company announced that it had net sales of $1.7 billion in the fourth quarter of 2011, compared to net sales of $1.2 billion in the 2010 fourth quarter. That represents an increase of 39%.
The company is banking on several factors that should play roles in the company being able to sustain its margins. The factors include global demand for crop nutrients and favorable natural gas prices. The operating margin is strong at 42.41%. The gross margin is also strong at 44.76%.
Revenues for last year were $5.6 billion, and the net income was $1.3 billion. CF pays a dividend of $1.60, yielding .90%. Being proactive in the face of lower demand for its product shows the company is willing to take the steps needed to maintain its stock value. CF is a buy.
Potash Corp. of Saskatchewan, Inc (POT): Shares are trading around $44 at the time of writing, which is within the fertilizer company's 52-week trading range of $38.42 and $63.37. With a market capitalization of $38 billion, Potash is one of the largest fertilizer companies in the world that pays dividends.
Last year, it paid a dividend of $.56, yielding 1.3%. In January, the company approved an increase in its quarterly dividend to $0.14 per share from $0.07 per share.
The company's doubling of its dividend indicates the company's commitment to create long-term shareholder value.
Its earnings last year per share were $3.51.Revenues were $8.2 billion, and net income was $3 billion.
The most recent earnings reported by Potash were for the fourth quarter. The company reported that they were $0.78 per share, which was 39% higher than those for the fourth quarter of 2010. For the year, the company's earnings per share were up 80% over 2010 to $3.51. The company notes that this is the second highest EPS in its history. For 2012, earnings guidance for the first quarter is between $0.55 and $0.75 per share. For the entire year, it is between $3.40 and $4.00 per share.
Potash had a price to earnings ratio of 12.6.
In December, Potash settled a lawsuit with competitor Mosaic Company (MOS) that obligates Mosaic to supply a set amount of potash through the end of this year.
The settlement, along with Potash's healthy financials, makes it a buy.
Agrium Inc. (AGU) Shares are trading around $80 at the time of writing which was within the company's 52-week trading range of $60.15 and $98.35. The company has a market capitalization of $12.7 billion, which is in line with several of its competitors.
The company's earnings per share were $8.68. Its price to earnings was $8.68. Its price to earnings ratio was 9.31. Agrium paid a dividend of $0.45, which yielded around .60%.
In December, the company announced it was quadrupling its dividend to $0.225 per share on a semi-annual basis. When making the announcement, the company credited the increase to the continued growth in stable earnings from its retail business. Also important was the company's wholesale earnings profile and outlook.
Agrium was able to increase its sales of crop nutrients even while the industry was being rocked by higher corn prices. In fact, fourth quarter sales increased 25% to roughly $1.5 billion.
In addition to this latest dividend increase, the company's commitment to provide higher dividends to shareholders should be noted. The company has managed to maintain a strong gross margin of 28.01%. Its operating margin is 14.23%. It is expanding its facilities to increase its annual potash production by about 50%. The expansion is expected to be completed by the second half of 2014. Agrium is a buy.
CVR Partners L.P. (UAN): Shares are trading around $28 at the time of writing, which is approaching the company's 52-week high of $31. Its 52-week low was $16.75.
The company, which is a master limited partnership, just went public in the spring of last year. While it has one of the lowest market caps in the industry at about $2 billion, it pays one of the largest dividends. For the year, CVR paid a dividend of $2.35, yielding 8.4%. For the fourth quarter of 2011, the company paid a dividend of $0.58 per share. Last year's dividend was $2.35, which yielded around 8.4%.
Its operating and gross margins were strong at 29.36% and 47.65%, respectively. CVR Partners' price to earnings ratio was 33.3. Its net income was $609 million and its revenues were $254 million.
The company has a niche in the fertilizer industry. It boasts having the only facility in North America that uses a petroleum coke gasification process to make nitrogen fertilizer. This uniqueness will continue to contribute to the company's strong earnings. CVR Partners is a buy.
Mosaic Company: Shares are trading around $55 at the time of writing. The company's 52-week trading range is $44.16 and $88.68.
The decreasing demand for potash has led Mosaic to reduce its production of potash by up to 20% from February through May 2012. The goal of the curtailment is to lower operating rates at its mines.
An above average demand for global potash shipments is expected this year. Mosaic has a market capitalization of $23 billion. The company's earnings per share were $5.24. It paid a dividend of $0.20, which yielded .40%.
The company's net income last year was $2.34 billion and its revenues were $11.1 billion. The price to earnings ratio was 10.38.
The company's operating margin increased steadily from 2006 through 2008, but decreased in 2009 and 2010. The margin increased in 2011, and was 27.94% last year. Mosaic's gross margin followed a similar path, and was 32.03% last year.
These strong margins, along with the company's efforts to curtail potash productions now in light of weakening demand are noteworthy. Mosaic is a buy.