Potash Corp. Stock Undervalued

Potash Corp. of Saskatchewan’s (POT) decision to increase its share buyback program to as much as 10% of the public float, or 31.5 million common shares, means it can repurchase another 15.7 million, or 5%, by the end of January 2009. CEO Bill Doyle said strong cash flows allow the company to re-invest in the world’s best potash assets – PotashCorp. itself, calling the stock “significantly undervalued versus our long-term potential.”

Citigroup analyst Brain Yu agrees, calling the recent sell-off in materials “indiscriminate” and noting that Potash is trading at its lowest multiple in its public history. He reiterated his “buy” and “top pick” ratings for the stock along with a $264 price target that implies upside of roughly 75%.

In a research note, the analyst said:

While we understand the demand linkage between industrial metals and global economic growth, our recent analysis of nearly four decades of global grain demand data indicates that grain demand has rarely declined year-over-year absent a major supply shortfall.

Mr. Yu noted that global grain inventories that now stand at 16.6%, or 8.6 weeks, leave little room for further downdown. He said that if grain prices fall materially, farmers should buy less fertilizers. At the same time, grain production may also decline on an annual basis, which implies that inventories fall and prices could then climb back to elevated levels.

Comments

[Clavis:]

Sharp move to repurchase, a new wind is blowing, allchange soon.

2008 Sep 14 12:45 PM

[daytrading:]

Potash is a buy and possible a hold, at least for a little while, if you can stomach the swings.

2008 Sep 14 03:08 PM

[anopenmind:]

Oh my goodness. I read a week ago the almighty wizard, Jim Cramer said Ag fertilizers, like POT, may drop 80-90% below their recent highs...for POT, that would be the $241 high. Does not the "mad man" know all about all?

2008 Sep 14 08:58 PM

[User 161729:]

With a strike in progress, skilled workers leaving, no negotiations in progress, company value is hurt somewhat. POT needs to cover this base before I buck the downtrend.

2008 Sep 15 12:16 AM

[Hashisheen:]

I'm not sure the strike is having much of an impact. If you look at The Mosaic Company (MOS) their share price has pretty much followed the same pattern at POT in terms of percentages and they have none of these issues. The recent buyback announcements and Friday's upgrades should ensure that downtrend is now complete and we can look forward to the share price rising more in line with how the Company is currently performing financially.

2008 Sep 15 05:36 AM