UBS Analyst Raises Agrium's Price Targets on Strong Q2 Earnings

Agrium Inc. (AGU) has seen its shares slump since peaking at more than C$116 June 19, but UBC analyst Brian MacArthur said that its strong second quarter results reaffirm his view of a sunny forecast for the stock, and the fertilizer industry in general. This week, Agrium posted earnings for the quarter of C$3.81 per share, compared with guidance of C$2.80-C$3.00.

In a research note, Mr. MacArthur said:

We continue to like Agrium over the long-term as the company provides good exposure to various fertilizer markets combined with a growing retail business

While margins in retail can be lower, we believe this segment complements the portfolio well as it tends to generate more consistent profits throughout the cycle.

Mr. MacArthur raised his earnings forecast for Agrium to C$7.87 for 2008 and C$12.61 for 2009 – compared to his previous forecast of C$7.19 and C$11,57, respectively. He also raised his price target on the  shares – to C$133 from C$130, a 53% premium over Wednesday’s closing price of C$87.10. However, he derived his new target by using a multiple of 9X his estimated 2009 cash flow per share (C$14.75) for Agrium instead of the 10x multiple he had been using.