PotashCorp: UBS Analyst Cautious Despite Record Quarter

Despite record earnings that beat consensus estimates and strong performances from each of its potash, nitrogen and phosphate segments, shares of PotashCorp of Saskatchewan (POT) declined roughly 3% on Thursday. The company also raised its 2008 earnings per share [EPS] guidance from C$9.50-C$10.50 to C$12.00-C$13.00 and saw cash flow per share [CFPS] climb more than 130% from the second quarter last year.

However, the threat of a possible strike at three of PotashCorp’s mines appears to be causing concern. The company has provided its “best and final offer” but without a settlement, a strike may begin on Friday.

UBS analyst Brian MacArthur maintained his “buy” rating on PotashCorp shares, but cut his price target to $308 from $320 as a result of uncertainty related to the labor dispute. This was done by applying a price-to-cash flow multiple of 11.5 times to his 2009 CFPS estimate of C$24.23, down from 12x previously.

RBC Capital Markets analyst Fai Lee remains far more bullish however, maintaining an “outperform” rating and US$375 price target, which represents upside of more than 90%.

Putting aside the possibility of short-term volatility for PotashCorp shares, he told clients the recent weakness presents an excellent buying opportunity for those with a long-term outlook. The analyst cited its price-to-earnings multiple of 8.9 times and estimated cash flow of $7.3-billion, or $24.13 per share, for 2009.

Mr. Lee also said the market is ignoring the company’s future potash expansion projects that could add as much as $95 per share in value.

His EPS estimates for 2008 and 2009 climb from $12.26 and $21.33 to $12.54 and $21.81, respectively, which is primarily a result of a higher assumed share buyback program.

Comments

[investor88:]

Excellent summary of recent research which re-affirms POT as a most promising stock with 2009 price target of usd300 to usd370 on forecast pe ratio of some 10x 2009 earnings. The key is to look at the prices of potash, further price strengthening would boost investment sentiment. A resumption of uptrend oil price and commodities indices would also boost fertilizer stocks. Useful article here for investors and short term traders. Look forward to further discussions at SEEKING ALPHA on the fundamental and technical dynamics of this stock.

2008 Jul 27 05:10 AM

[will:]

Potash should be 250+ right now and the only reason it isn't, is cause criminals are manipulating the stock price. CEO Doyle needs to blow them skyhigh today or Monday with great news.

2008 Jul 27 09:10 AM

[sliman:]

Surprised this stock has not split. Russian potash mine is in danger from a sink hole. If the mine closes, POT is going to $250 fast.

2008 Jul 27 09:52 AM

[titans:]

Be careful guys; these guys are pros & will sucker in all your money with great news so you pile all your hard earned cash (just like they did with the uranium stocks the 1st qtr. of '07;then in April '07 they started dumping the shares of every uranium company as the price per lb. fell off the cliff).They know that the .53 cent ethonal tax on Brazil will be lifted with DEMS win and probally even if REP. win.Once that tax is lifted; these ag. stocks will do the same thing that the uranium stocks did (look out below).As their falling, the crooks will be continually putting out higher price targets & other great news sucking in all your money.You might get alittle bounce in AUG. & maybe in Sept., but it'll come in Oct (mark my words).The big boys don't wait for the news to hit the wire so us little people can get out & take our profits.Believe me, they'll be the 1st ones out taking YOUR money (I know the feeling with those high flying uranium stocks from 2006 & 1st qtr. of 2007:it sucks).Take 50% of total money out after next month & another 25 to 30% in Sept., then get ready to take the last bit out QUICK; you'll see.Plus that long term capital gains tax will hit the market if DEM wins going from 15% to 30 or even 35% on your winnings.Tell me who will NOT cash out in 2008 with their winnings before new law goes into effect.Why pay 30 to 35% tax on winnings when you can only pay 15% before Dem GETS INTO OFFICE.With the huge gains the big boys made,why will they stay in longer to pay those higher capital gain taxes ??? I wouldn't be surprised if the big boys were not pulling their money out already ???? Be careful guys,when it starts to get bad all the ag stocks will have a chart that will show the side of a steep cliff....................

2008 Jul 27 11:08 AM

[pennystocks...:]

Sounds you're a little bit cranky these days. Hurt by uranium stocks, huh? Of course there is a lot of trading going on with the fertilizers, hence the volatility. Nonetheless, the fundamentals of these stocks are alright. Some people continue to think that fertilizer demand is a fad that will only last for the next two quarters. How silly! POT is a great selection for long-time investors (like me).

2008 Jul 27 12:03 PM

[RossQ:]

Ah Have you seen the coal and steel and ag charts. Its already happening. Despite record profits the stocks have been sold in tremendous volume. There are lots of theories as to why, #1. Hedge funds do this rotation when a trade get too crowded. For example the banks and financials were so heavily shorted they started taking their money out of commodities and started pushing the short side on banks and financials, now they are pushing up the banks and homebuilders, this is a head fake. Thursday there was a big shift IMO, especially from 9:30 to 11am huge sector rotation, massive volume. Banks and Financials sold off and continued but with less vol on Friday. Commodities stabilized. See 5 day charts of KOL, SLX, MOO, UYM, XME etc and check out SRS, SKF, UYG. I am mostly short banks and long commod's and have an itchy trigger finger and my thinking can change with developments in the charts.

I am currently going and studying days where there was sector rotation so I can get a better tell. So far i have noticed there is an increase in price fluctuation, irratic stock behavior without news. and failure to make new highs on a stair step climb. In reverse I have noticed that stocks going down exhibit the inverse but simialr behavior, just turn the charts upside down.

Following this I got out of DUG as it failed twice at 38 to hold its 200dma (even on good volume), result Bullish on DIG (oil stocks). Oil services not so much yet.

Also the Financials ETF failed to take out its 50dma on two attemps on very good volume. Also SKF held its 200dma in the selloff and didnt need to retest. Result was that I added to my short financial list. Until I see something different in the charts I am not bullish on the Banks and Financials. Bullish oil stocks not OIL (USO), that chart sticks, bearish Nat Gas, scared to death but long KOL, MOO, UYM, SLX, GLD, SLV.

2008 Jul 27 12:04 PM

[bostonrose:]

Yes POT has good forecasted earnings and growth. But I ask you, who is left to buy these shares? I would venture that there are many more holders of POT (i.e. potential seller) then there are potential holders (i.e. buyers). Be careful, put in your stop-order.

2008 Jul 27 12:17 PM

[A. Nony Mouse:]

Uh, Titans, I am unclear as to why you think the DEMS are prepared to allow sugar based ethanol from Brazil into this country at the expense of the US farm belt. These guys are not free-traders, as witness their desire to revise NAFTA and scuttling the trade treaty with Columbia. Granted there is going to be a short term pull back in ag stocks, but its going to take a major global slow down to end the need to feed.

2008 Jul 27 12:22 PM

[Dan Schmeidler:]

The Ag group is the last of the commodities still hanging on. Oil, Steel, and Nat Gas, especially, have already lost their floor. I am still wondering why one would think that the Ag group deserves to be so expensive. POT is trading at a PE north of 40. Nat Gas is around 20. RIG (driller) is around PE 8. I believe the potential is indeed there for the market to rotate and assign the Ag sector as a whole a lower price tag. Even with the amazing earnings coming from POT in Q-2, a peak in its stock price $240 is a good possibility.

2008 Jul 27 04:23 PM

[titans:]

It's amazing how many narrow minded people we have in the markets.All the fundamentals or global growth or if a DEM OR REP. wins, which if you read correctly (mythoughts) , I never said who will win, it doesn't matter.The .53 cent tax will be dropped if you watch & listen to talk shows about politics & read magazines.Plus the new capital gains tax which will happen next year, which pennystocks2 is unfamiliar with (head in the sand) because he probally doesn't read or know how to....W

2008 Jul 27 11:42 PM

[titans:]

All the fundamentals or global growth or if a DEM or REP. wins office, which I never said who was going to win, if only mythoughts2 could read properly.When the .53 cent tax on ethonal imports from Brazil will be dropped, the ag stocks will get hammered.If you listen & watch shows about politics, you would learn something.Plus Mr. pennystocks2 who probally never heard that there will be a new capital gains tax going into effect next year.But he wants to talk about fundamentals.You keep talking about your fund'y when the big boys keep selling your stock.Tell the whole world about POTS fundy's as you're losing your shirt.When the big boys start to sell,funy's & a token will get you a bus ride or a subway ride down to the bowery in lower Manhattan.Tried to give a heads up about the oldest profession, but your heads are to far in the sand....I'll be writting back to you global growth & fund'y dudes in less than 9 months....Keep holding the bag while the stock keeps taking...Better yet believe in your stock & put more money to work while it's tanking, you probally never heard of , don't try to catch a falling knife !!!! Some of you guys think your going to outwit the "the big boys"...My bet is on the "big boys"; you lose know-it-all..............

2008 Jul 27 11:55 PM

[pennystocks...:]

POT is by no means expensive. As you can read above, POT is currently trading at a multiple of 8.9 times next year's earnings. Doesn't sound that pricey to me. I don't care about rotational shifts. The global ag market is in a secular uptrend. The potash business has high barriers to entry for competitors and POT controls the majority of excess potash capacity. The fundamentals are sound and POT is a terrific long-term investment.

@mythoughts: Finally somebody had the guts to speak out loudly. The choice between B. Hussein Obama and McCain should be a no-brainer.

2008 Jul 28 12:04 AM

[schminkie:]

just another point on the brazilian ethanol trade. obama is very strong on using corn. obama is from illinois a major corn producer and he has gone on record as a strong corn ethanol backer. the 'smart money' will continue to swoop in and out of sectors and industries. on friday i think, maybe thursday, i watched money pour out of airlines and into coal and back all day.

agriculture will roll along whether or not the smart money invests in it and where there' ag there is fertilizer.

2008 Jul 28 01:17 AM