Keeping a Balanced View on Potash

We are retaining our Neutral stance on world's largest fertilizer company Potash Corporation of Saskatchewan Inc. ( POT - Analyst Report ) . The Canada-based company posted tepid first-quarter 2012 results with both revenues and earnings missing the Zacks Consensus Estimates. Revenues and profit slid year-over-year, bogged down by lower sales of potash due to weak demand.

Potash Corp. faced challenges associated with deferral of fertilizer purchases by its customers in the quarter. The company sniped its earnings target for 2012 to $3.20 to $3.60 per share from its previous forecast of $3.40 to $4.00.

Potash Corp. has a competitive advantage stemming from its mining rights to the world's largest potash reserve. The company has a strong geographic diversification and continues to invest in expanding its operational capability in potash.

While there is uncertainty surrounding the U.S. economy and the sovereign debt crisis in Europe, the strain on the world's food supply is driving strong demand for all three nutrients of the company, especially potash.

Given the tight potash supply in North America, Latin America and spot markets in Asia, the demand for potash is expected to rise as buyers are now seeking to secure the product. Potash Corp. expects this trend to continue in 2012.

With more than half of the world's estimated new supply coming from its projects between now and 2015, the company believes that it can capture a significant share of demand growth over the next several years.

While demand for potash is expected to strengthen over the course of 2012, shipments are expected to be sluggish moving ahead. The company is also exposed to macroeconomic uncertainties and other issues such as price volatility and currency exchange fluctuation.

While need for potash is significant in major developing economies like China and India in the long run, a few short-term challenges across these markets may impact the near-term demand for fertilizers. The Indian government's move to trim potash subsidy levels coupled with higher retail pricing resulted in lower demand in that country. As a result, the company has scaled back its potash demand outlook for India for this year.

Potash Corp., which competes with BASF ( BASFY ) and Mosaic Co. ( MOS - Snapshot Report ) , currently retains a Zacks #3 Rank, which translates into a short-term (1 to 3 months) Hold rating.