Fertilizers industry is on a solid footing buoyed by strong global demand and prices of crop nutrients. The underlying strength of the agricultural market, a rally in crop commodity prices and attractive farm economics are spurring demand for fertilizers globally. Industry players like Nutrien Ltd. ( NTR Quick Quote NTR - Free Report) , CF Industries Holdings, Inc. ( CF Quick Quote CF - Free Report) , The Mosaic Company ( MOS Quick Quote MOS - Free Report) and Intrepid Potash, Inc. ( IPI Quick Quote IPI - Free Report) are poised to gain from higher demand for fertilizers in the major markets. Factors like healthy farm income and expectations of increased planted acres are expected to drive demand globally in the near term. About the Industry
The Zacks Fertilizers industry comprises producers, distributors and marketers of crop nutrients for the global agriculture industry. Companies in this space offer nutrients such as phosphates (including diammonium phosphate, monoammonium phosphate and phosphoric acid), potash and nitrogen (including urea, ammonia and urea ammonium nitrate) fertilizers. They also provide other nitrogen products to help farmers maximize crop yield. Crop nutrients are essential to drive agricultural productivity and boost soil’s natural fertility. Demand for these nutrients is being supported by the need to grow the production of grains to address rising food consumption globally. Moreover, the constant need of growers to nourish their crops, replenish nutrients in the soil following a harvest and boost yields to feed a growing global population drives the consumption of fertilizers.
What's Shaping the Future of the Fertilizers Industry?
The companies in the fertilizers space are well placed to benefit from strong global demand and prices of major crop nutrients. Demand for fertilizers in the United States is likely to be fueled by solid farm profits and higher planted acreage. Strong farmer economics are also expected to support demand in major markets such as Brazil and India. Phosphate markets are likely to remain robust in the near term on solid demand and pricing dynamics. Tight availability along with firm demand is driving up phosphate prices globally. Potash prices have also strengthened on the back of robust global demand, aided by strong grower economics, higher crop prices and low global inventory levels. Demand for nitrogen fertilizer also remains healthy in major markets. Global nitrogen requirement is being driven by demand in North America, India and Brazil. Healthy corn acres in the United States are expected to spur up nitrogen demand in North America. Moreover, demand for urea imports into Brazil and India remains favorable. Lower global supply availability and a spike in energy prices across Europe and Asia are also driving nitrogen prices. Solid Demand and Pricing for Crop Nutrients:
While the coronavirus pandemic stung a vast spectrum of industries, agriculture was left unscathed given the sustained rise in food demand globally. Moreover, strong global demand and tightened supply provided a boost to crop commodity prices. Prices of corn and soybean have rallied to multi-year highs. Higher agricultural commodity prices augur well for crop nutrient demand over the near term. Expectations of higher planted corn and soybean acres globally on the back of higher crop prices also suggest a pickup in fertilizer demand. Agricultural Fundamentals Remain Strong: Farm economics have strengthened in the United States on the back of a spike in crop commodity prices and government support. The U.S. Department of Agriculture expects net farm income to increase 19.5% year over year to $113 billion in 2021, the highest level since 2013. Solid farm income backed by higher agricultural commodity prices will likely drive farmers’ spending on crop nutrients. Healthy Farm Economics: Zacks Industry Rank Reflects Bright Prospects
The Zacks Fertilizers industry is part of the broader Zacks
Basic Materials sector. It carries a Zacks Industry Rank #6, which places it in the top 2% of more than 250 Zacks industries. The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates upbeat near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1. Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture. Industry Tops Sector & S&P 500
The Zacks Fertilizers industry has outperformed both the Zacks S&P 500 composite and the broader Zacks Basic Materials sector over the past year.
The industry has gained 45.7% over this period compared with the S&P 500’s rise of 32.5% and the broader sector’s increase of 13.7%. One-Year Price Performance
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is a commonly used multiple for valuing fertilizer stocks, the industry is currently trading at 9.87X compared with the S&P 500’s 15.83X and the sector’s 5.87X.
In the past five years, the industry has traded as high as 21.97X and as low as 6.04X, with a median of 12.52X, as the chart below shows.
Enterprise Value/EBITDA (EV/EBITDA) Ratio
Enterprise Value/EBITDA (EV/EBITDA) Ratio
4 Fertilizer Stocks to Keep a Close Eye on
Nutrien: Canada-based Nutrien is a leading provider of crop inputs and services. The company is benefiting from solid demand and higher prices for crop nutrients on the back of strength in the global agriculture markets. Nutrien is also gaining from acquisitions, cost efficiency and increased adoption of its digital platform. The company also continues to expand its footprint in Brazil through acquisitions, including Tec Agro. These factors have contributed to its share price appreciation of 44.6% over a year. Nutrien currently sports a Zacks Rank #1 (Strong Buy). It has an expected earnings growth rate of 212.2% for the current year. The Zacks Consensus Estimate for current-year earnings of NTR has moved up 12.9% in the past 60 days. Price and Consensus: NTR
CF Industries: Illinois-based CF Industries is a leading global manufacturer of nitrogen and hydrogen products for fertilizer, clean energy, emissions reduction and other industrial applications. The company is gaining from higher nitrogen fertilizer demand in major markets. CF Industries is seeing higher nitrogen demand in North America for industrial uses. Higher nitrogen prices aided by strong global demand and lower global supply availability are also driving the company’s top line. CF Industries also remains committed to boosting shareholders’ value by leveraging strong cash flows. These factors have resulted in a share price rally of 68.2% over the past year. CF Industries, carrying a Zacks Rank #1, has an expected earnings growth rate of 121.1% for the current year. CF has a trailing four-quarter earnings surprise of roughly 97.8%, on average. Price and Consensus: CF
Intrepid Potash: Colorado-based Intrepid Potash is the only producer of muriate of potash in the United States and also makes a specialty fertilizer, Trio. The company is gaining from strong commodity prices and higher potash demand and pricing, which is supporting its sales and margins. Higher realized sales prices for potash and Trio are driving Intrepid Potash’s bottom line. A recovery in economic activities and the strength in commodity prices are driving demand for Trio. These factors have resulted in a share price rally of 199.4% over the past year. Intrepid Potash, carrying a Zacks Rank #1, has an expected earnings growth rate of 244.7% for the current year. The Zacks Consensus Estimate for earnings for the current year for IPI has been revised 3.3% upward over the past 60 days. Price and Consensus: IPI
Mosaic: Florida-based Mosaic is a leading producer and marketer of concentrated phosphate and potash for the global agriculture industry. The company is leveraging increasing global demand for fertilizers and higher realized prices in its businesses. Mosaic is also taking measures to cut costs in a still-challenging operating environment. Its actions to improve the operating cost structure through transformation plans are contributing to profitability. Transformational savings are also driving margins in its Mosaic Fertilizantes segment. Driven by these factors, the company’s shares have shot up 57.1% over a year. Mosaic, carrying a Zacks Rank #2 (Buy), has an expected earnings growth rate of 500% for the current year. The Zacks Consensus Estimate for current-year earnings for MOS has moved up 1.4% in the past 60 days. Price and Consensus: MOS