Terra Industries Inc.

Terra Industries Inc. (TRA), the nitrogen products manufacturer, posted record earnings in 2008 as nitrogen prices soared.

The company has surprised on estimates 4 quarters in a row by an average of 53.27%. First-quarter estimates are rising as spring planting season begins. TRA has a PEG ratio of 0.97.

Company Description

Terra Industries produces nitrogen products for various markets including agriculture, industrial and environmental customers.

The company operates 6 North American nitrogen products manufacturing plants and a a 50% interest in joint ventures in the UK and The Republic of Trinidad and Tobago.

For the last few months, Terra has been subject to an offer of acquisition by CF Industries Holdings (CF - Analyst Report).

The first offer was rejected by Terra's Board of Directors. On Mar 23, CF said it was prepared to raise its offer by 11% to $30.50 for each Terra share.

On Mar 24, Terra's Board also rejected the higher offer stating, "this most recent version of your proposal continues to run counter to Terra’s strategic objectives, substantially undervalues Terra both absolutely and relative to CF, and would deliver less value to our shareholders than would owning Terra on a stand-alone basis."

CF has not indicated that it's going away anytime soon even though it is also subject to an acquisition offer itself from Agrium (AGU - Analyst Report).

Stay tuned for further developments. It's getting interesting.

Record 2008 Results

Business continues on, as usual, for Terra despite the CF acquisition offer. On Feb 10, the company reported record 2008 results as revenue jumped 26% to $2.9 billion from $2.3 billion in 2007.

The increase was fueled primarily by higher selling prices as prices of Ammonia, UAN and AN rose 64%, 48% and 38%, respectively, compared to the year ago period. Sales volume declined for ammonia and UAN, by 5% and 4%, while AN sales increased by 2% compared to 2007.

Net income was a company record as it more than doubled in 2008 to $6.20 per share up from $1.90 per share in 2007.

Fourth quarter earnings beat estimates by 53.27% as the company reported an adjusted $1.64 per share. Analysts had expected only $1.07.

Revenue for the fourth quarter jumped 20% to $683.5 million from $569 million in the fourth quarter of 2007 mainly due to higher nitrogen product selling prices.

Sales volumes declined sharply, however, due to the global slowdown. Terra recorded $49.8 million in charges related to derivative and inventory valuation. It also idled its Donaldsonville, LA and Woodward, OK manufacturing plants due to slow December demand.

Cash Rich

As of Dec 31, 2008, Terra Industries had cash balances, including approximately $37 million in derivative margin deposits, of $1.003 billion.

Outlook for 2009

The company expects spring nitrogen demand to be strong as those growers who deferred applications in the fall must buy in the spring.

Terra also forecasts nitrogen selling prices to improve as demand increases. The company also sees industrial ammonia demand staying weak.

Consensus Estimates Rise for 2009

Analysts have been all over the place on Terra's earnings estimates. Estimates have fallen sharply from 90 days ago before the global recession deepened. But in the last 30 days, estimates have turned higher.

First quarter consensus estimates are up 2 cents to 37 cents in the last 30 days. Full-year 2009 consensus estimates rose 5 cents to $3.19 in the last month.

Value Fundamentals

Terra Industries is a Zacks #1 Rank (strong buy) stock. It has a forward P/E of 7.7. Its price-to-book is 2.76. The company also has an outstanding 5-year return on equity (ROE) of 23.12%.

Additionally, Terra rewards shareholders with a dividend that is currently yielding 1.50%.