RBC: Agricultural Commodity Boom To Help Reduce Agrium's Earnings Volatility

Fertilizer producer Agrium Inc. (AGU) sees sunny skies ahead, and industry observers are starting to agree.

According to Fai Lee, an analyst at RBC Capital Markets, Agrium will enjoy growth with reduced earnings volatility thanks to the boom in agricultural commodities, potentially leading to a positive change in the way the company is valued by the market.

Agrium shares moved up nearly 4%, or C$1.78 to C$47.11, on Tuesday, a day after it boosted its earnings forecast for the second quarter to C$1.55 a share from an earlier range of C$1.45 - C$1.55.

According to management at North America's largest producer of nitrogen fertilizer, the replacement cost for its existing assets would be C$96 per share, significantly above the current share price.

In a research note, Ms. Lee said she agrees with management's view that the value of those assets will be recognized over time. But in order for that to happen, he said Agrium must "demonstrate to investors the visibility of its future earnings."