Agrium Set For Explosive Growth

I began analyzing the fertilizer plays before last week's rally and news from Potash (POT), Agrium (AGU) and others, and immediately realized I was onto something that may be unprecedented over the next few years. I automatically concluded that all of the talk surrounding growing economies and the trend of having staples that have eluded a majority of the world's population has made a case for the extreme bullishness towards the few large companies that provide the raw necessities for this demand.

As worldwide population growth has accelerated and more and more growth is realized in heavily populated areas such as China, India, and South America, it is evident that the demand for agricultural products has a very bright future. This has alerted me to one company in particular, Agrium, that I feel has been under viewed/analyzed in favor of the likes of others such as Potash, and may benefit greatly and have a significant return, both short and long term, based on its current asset value, sales, margin expansion etc...

I personally like a majority of the fertilizer plays, and am keen towards POT and AGU. I have recently been researching the latter, as I believe that this company has now lined up its objectives, operations and growth plans, and is set to have an earnings and growth explosion, which will be further enhanced and supported by its retail division.

AGU is fundamentally undervalued in relation to its future earnings and peers, AGU earnings estimates are continuously being revised higher and currently for 2008 are forecast in the range of $3.50-$4.30, and with worldwide economies not abating, this, in my opinion, may be conservative.

Assuming 2008 earnings of $4 a share (I believe this is very conservative), the stock appears to be undervalued and ready to break out to new sustainable plateaus on a long term view (broke to new short term highs last week). The longer term view holds a potential breakout in the stock that will be equivalent or better than has been enjoyed by its peer Potash (over the last year), as it ramps up production, realizes the potential of its retail division, continues to generate efficiencies in its operations and above all, the demand and margins for its products keep increasing as the middle class and underdeveloped nations jump on the worldwide bandwagon of growth, prosperity and lifestyle changes (the increasing consumption of meat products).

The AGU train is now formally being tracked and realized by the investment community as a value play, and the gains AGU will generate in the next few years through its operations will reflect back on today's stock price to the conclusion that it was indeed a great entry and turning point for the company.

With a forward Price/Sales of a meager 1.7, a PE of about 15 times conservative 2008 earnings and a market cap of 8 billion, look for this expansion to break out to 20-23X earnings and a value that should touch the $100 level within the next 6-18 months.

After all, even though I like Potash, it is fully priced at a forward PE of about 27 and price/sales around 9; this standard makes the potential and fundamentals for AGU that much more enthusiastic.

Disclosure: Author has a long position in AGU, on both a short and long term basis.

Comments

[Richie:]

This stock is bargain Priced????? What are you smoking, buddy?????

Ave 10 yr PE: 12X
Currently Trading at 5.5X Book Value
Currently at 25X Cash Flow
Current PE: 53X
5 yr Sales Growth: 15%
Net Margins: 3.4%
Debt/Equity Ratio: .55
Average ROE, ROA, ROC: 6% - 8%
Current Multiple of Book Value: 5X
10 Year Ave. Price/Sales ratio: .9

2007 Oct 30 04:07 PM

[akms76:]

Richie, WOW! You need to go back to home economics. Agu has a forward p/e of 15-17(2008 earnings). I guess CF industries outlook for the upcoming fourth quarter and 2008 crop input means nothing to you?

The mumbo jumbo you wrote down is a trailing indicator. The author has it right on...

Please stick with hight p/e stocks like amzn you might feel like there is more growth there...lol

2007 Oct 30 08:53 PM

[Alan Li:]

This article is well written and a good view into the company. Peter is pointing out the future earnings and growth potential and not the copy/paste past figures that Richie has commented with,Richies comments and feedback are unintelligent, the company had some previous issues around the Retail aquisition and has since solved these. Potash has a book of 8X, Future P/E of 27, the current P/E of agrium is obviously a skewed figure, based on the past issues. The author is right about the estimates and potential and shows that he has obviously been around the financial markets long enough to know what he is interpreting.

Peter - Please keep up the good coverage and future articles, it is a pleasure reading intelligent work, good article.

Alan Li

2007 Oct 30 09:11 PM

[Richie:]

Those of you that thinks this stock is a bargain are the same folks that said internet stocks were cheap in 2000-2001 based on foreward earnings.

2007 Oct 31 01:33 PM