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We have retained our Neutral recommendation on leading fertilizer company Agrium Inc. (AGU - Analyst Report). We remain on the sidelines factoring in the soft pricing environment and somewhat weak overseas demand for potash and phosphate in the near-term.

Why Maintained?

Adjusted earnings of $2.16 per share for fourth-quarter 2012, posted on Feb 21, comfortably beat the Zacks Consensus Estimate of $2.02. Revenues rose around 3% year over year to $3,261 million and beat the Zacks Consensus Estimate of $3,116 million.

The results were aided by higher sales of crop protection products and crop nutrients. However, weak global demand hurt potash and phosphate sales in the quarter.

Agrium stands to gain from rising crop prices and overall strong fundamentals for the agriculture and crop input market. The company follows a strategy to grow along the value chain through a combination of acquisitions and organic development.

The acquisition of AWB has expanded Agrium’s Retail division and provided access to the growing Southeast Asia market. Moreover, the acquisition of Viterra Inc’s agri-products business is expected to support its earnings in 2013. However, Agrium will not acquire Viterra Inc’s 34% stake in the Medicine Hat nitrogen facility as CF Industries (CF - Analyst Report) has agreed to buy the same.

Agrium expects high crop prices and tight grain inventories to create higher demand for its nutrients. It envisions strong demand for top quality seeds in the 2013 growing season. Agrium is also expected to benefit from healthy demand for urea in India and Brazil.

However, demand for potash and phosphate is expected to be weak in some of the key overseas markets, especially India. Changes in pricing and subsidy policies by the Indian government are expected to continue to affect demand in the country.

Moreover, the pricing environment for phosphate is expected to remain soft in first-quarter 2013. The global phosphate market is expected to remain weak in the near term, partly due to lower demand from India (a major phosphate import market).

Agrium currently carries a short-term (1 to 3 months) Zacks Rank #3 (Hold).

Other Stocks to Consider

Other fertilizer companies having favorable Zacks Rank are Rentech Nitrogen Partners, L.P. (RNF - Snapshot Report) and Monsanto (MON - Analyst Report). Both hold a Zacks Rank #2 (Buy).

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