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Earnings momentum for Agrium Inc. (AGU - Analyst Report) has been increasing since the fertilizer company delivered a strong second-quarter report early this month. AGU stands to benefit from high crop prices and overall strong fundamentals for the agriculture and crop input market. With low valuation metrics, including a forward P/E ratio of just 9.7, this Zacks #1 Rank (Strong Buy) stock is a good play for value investors.
Agrium Tops in 2Q
Agrium posted healthy second-quarter 2012 results on August 2, including a roughly 20% year-over-year surge in its profit to $860 million. Adjusted earnings of $5.43 per share topped the Zacks Consensus Estimate of $5.36. The company has now beaten expectations in seven out of the last 10 quarters.
Revenues shot up 10% year over year to roughly $6.8 billion. The companys core retail segment posted sales of $5.2 billion, a year-over-year surge of 12%. Strong demand for all crop input products and services led to higher sales. Crop nutrient sales jumped 12% to $2.4 billion as farmers took advantage of favorable crop prices and increased nutrient purchases.
Revenues from the wholesale segment marginally rose to $1.7 billion while sales from the Advanced Technologies division climbed 13% to $178 million.
The company expects crop yields to be lower in 2012 owing to the severe drought in the U.S., resulting in high grain prices. High crop prices (especially for corn) and tight grain inventories are expected to create huge demand for nutrients.
Earnings Estimates Moving Up
Six out of eleven estimates have been revised higher in the last 30 days for 2012, pushing the Zacks Consensus Estimate up by 49 cents (or 5.2%) to $9.89 per share. This reflects a projected annualized growth of roughly 1.2%.
Seven estimates out of fourteen have moved higher for 2013 in the same time, sending the Zacks Consensus Estimate up by 41 cents (or 4.4%) to $9.77 per share. There has been one downward revision as well. The estimate for 2013, however, reflects a year over year decline of 1.2%.
A Value Stock
Agriums shares have bounced back following a rocky second half of 2011. The stock has performed reasonably well so far this year, generating a healthy year-to-date return of roughly 35%. Moreover, shares hit a new 52-week high of $97.89 on August 8, 2012.
Strong second quarter results and the sharp rise in crop prices have contributed to the stocks recent rally. The upward momentum is likely to continue as Agrium, like many other leading fertilizer stocks, is poised to gain for the remainder of 2012 from the drought in the Midwest.
Agrium has lot to attract investors seeking value. In addition to having a low forward P/E, the stock has a price-to-sales (P/S) ratio of just 0.9. It also sports a low price-to-book (P/B) ratio of 2.1. (A P/S ratio lower than 1.0, a P/E below 15.0 and a P/B ratio under 3.0 generally indicate value.)
Founded in 1931, Agrium Inc. is a leading global wholesale producer of all three key agricultural macronutrients - nitrogen, potash, and phosphate. It is the biggest farm products retailer in North America. Agrium, which has a market cap of roughly $15.2 billion, operates in three segments, namely Retail, Wholesale and Advanced Technologies. The Retail segment offers its products and services (including crop nutrients, crop protection products and seed products) through 1,177 retail outlets in North and South America.