Terra Industries Inc.

Terra Industries Inc. (TRA) has seen its stock crushed in the market downturn as the fertilizers moved out of favor on fears of a commodities crash. The company is now incredibly cheap, trading at only 2.8x projected earnings, yet fundamentals remain intact.

TRA has surprised on estimates the prior 2 quarters by an average of 30.11%. Analysts still expect year over year earnings growth of 152.49%. Terra is expected to report third-quarter earnings on Oct 23.

Company Description

Terra Industries produces nitrogen products for agricultural, industrial and environmental customers. TRA owns 6 North American manufacturing facilities and owns a 50% interest in joint ventures in the UK and The Republic of Trinidad and Tobago.

The company's product line includes ammonia, urea ammonium nitrate solutions (UAN), ammonium nitrate and urea.

Terra Industries Crushed Second Quarter Estimates by 51.22%

On July 24, TRA reported second quarter earnings that easily beat Wall Street estimates by 63 cents a share. Earnings per share were $1.85 compared to analysts' estimates of $1.23 per share. Net income soared to $202.2 million from $69.4 million in the second quarter of 2007.

Revenues jumped 22% to $843.1 million from $692.5 million in the year ago period mainly due to higher nitrogen product pricing. Ammonia rose 48%, UAN increased 48% and ammonium nitrate gained 25% over a year ago prices.

There was strong nitrogen product demand resulting from low grain inventories and high grain prices.

Outlook

Terra saw record earnings in the second quarter but can it repeat its performance? In July, the company expected strong demand to continue for the remainder of the year as customers would need to fill their storage capacity in anticipation of the spring 2009 planting and application season.

At the end of the second quarter, the company expected tight supplies to continue to support higher prices. However, with the commodities downturn and the credit crisis, the outlook for some of the nitrogen products has changed. Urea prices, for instance, have fallen over the last few weeks.

Consensus Estimates Still Rising

Despite uncertainty in the nitrogen fertilizer market, covering analysts have been raising estimates for the third quarter and the full year. Third-quarter estimates are up 10 cents to $1.52 in the last 30 days.

For the full year, estimates jumped 9% to $5.98 from $5.49 per share in the last month.

Value Fundamentals

Terra Industries is a Zacks #1 Rank (Strong Buy) stock. TRA is dirt cheap. It is trading at only 2.8x forward earnings and has a price-to-book of 1.79.

TRA has an excellent five year average return on equity (ROE) of 16.45%. Additionally, the company pays a dividend with a current yield of 2.00%.