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Since I first presented my bullish case on Potash (NYSE:POT) here, the stock has risen by 16%, outperforming the Dow Jones by 980 bps. According to T1 Banker, the stock is still rated around a "buy". Based on my review of the fundamentals and multiples analysis, I find that the firm will outperform Mosaic (NYSE:MOS).

From a multiples perspective, Mosaic is the cheaper of the two. It trades at a respective 11.2x and 11.5x past and forward earnings, with a dividend yield of 0.3%. Potash, meanwhile, trades at a respective 13.4x and 12.2x past and forward earnings, with a dividend yield of 1.2%. To put this in contrast, consider that Potash is valued at nearly half of its historical 5-year average PE multiple!

At its fourth-quarter earnings call, Potash's management noted challenges:

"While potash pricing remained relatively stable in most key markets, our average realized price declined slightly from the trailing quarter. This reflected greater pressure from offshore imports in certain regions of the United States and higher fix per tonne in transportation and distribution costs due to a reduction in domestic volumes.

In addition, we sold a larger percentage of tonnes to lower netback offshore contract markets. Still, our earnings of $0.78 per share for the fourth quarter were 39% higher than in the same quarter of 2010, reflecting the pricing gains established for all 3 nutrients over the course of the year".

The fourth quarter was an overall poor close to 2011. Still, sales increased by 31%. I anticipate greater volumes and improved pricing going forward for potash, nitrogen, and phosphate by around 2Q12. Customers were reserved in Q4, due to a cautious outlook and this is likely to carry into the first half of this year. The second half is likely to be an inflection point, as Potash puts its 11M tons worth of capacity to good use.

Consensus estimates for Potash' EPS forecast that it will grow by 5.4% to $3.70 in 2012, and then by 4.6% and 3.4% in the following two years. Assuming a multiple of 14x and a conservative 2013 EPS of $3.84, the rough intrinsic value of the stock is $53.76, implying 13.7% upside.

As a general industry note, it is important to consider that the lack of government intervention allows for more efficient output. Put another way, supply and demand can be easily balanced. Towards that end, producers are cutting back on potash supply to improve margins. High crop prices will concurrently drive phosphate and potash momentum. In the longer term, Mosaic's management has guided for an unusually high domestic application season that will realize record international shipments. Its 13% global share of phosphate production and vertical integration allows for yet more efficiency.

Consensus estimates for Mosaic's EPS forecast that it will grow by 8.6% to $4.79 in 2012, and then by 8.6% and 12.3% in the following two years. Assuming a multiple of 12x and a conservative 2013 EPS of $5.15, the rough intrinsic value of the stock is $61.80, implying 5.1% upside.

Source: Potash To Rise 14%, Dwarfing Mosaic

Additional disclosure: The distributor of this research report is not a licensed investment adviser or broker dealer. Investors are cautioned to perform their own due diligence. We seek business relationships with all of the firms in our coverage, but research covered in this note is independent and prospectively commissioned. Always discuss investments with a licensed professional before making any financial decision. Statements made within this report may include “forward-looking statements” as stipulated under Section 27A of the Securities Act of 1933, Section 21E of the Securities Act of 1934, and the Private Securities Litigation Reform Act of 1995. Since these statements are uncertain, actual results may be materially different from those expected.