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Fertilizers Industry Outlook: Near-Term Prospects Bleak
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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, potash, nitrogen fertilizers, including urea, ammonia and urea ammonium nitrate, as well as other nitrogen products, to help farmers improve crop yield.
Let’s take a look at the industry’s three major themes:
Weak agricultural commodity prices are hindering recovery of the fertilizer industry. Prices of major crops like corn and soybean are at multi-year lows, partly due to a supply glut. Meanwhile, escalating trade tensions between the United States and China are weighing on crop prices in North America.
Healthy demand along with tightened global supply is providing support to global nitrogen prices. Enforcement of environmental regulations is limiting export volumes from China. Moreover, global potash demand and supply balance are likely to tighten further and boost prices. However, prices of phosphate are declining owing to lower global demand and increased supplies due to higher exports.
The near-term demand outlook for major fertilizers like nitrogen and potash is positive, supported by expectations of healthy spring application in North America. Strong usage in key consumer markets is driving demand for primary crop nutrients. Also, expectations of higher planted corn acres in the United States suggest a pickup in crop nutrient demand in North America. Demand for phosphate and potash is also strong in Brazil, another key market.
Zacks Industry Rank Reflects Gloomy Prospects
The Zacks Fertilizers industry is part of the broader Zacks Basic Materials sector. It carries a Zacks Industry Rank #171, which places it at the bottom 33% 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 bleak 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.
Despite the industry’s weak near-term prospects, we will present a few stocks that you may want to hold in your portfolio. But, before that, it’s worth taking a look at the industry’s stock market performance and current valuation.
Industry Tops Sector & Lags S&P 500
The Zacks Fertilizers industry has topped the broader Zacks Basic Materials sector over the past year. However, it trailed the Zacks S&P 500 composite.
The industry has declined 15.7% compared with the S&P 500’s rise of 2.2% and the broader sector’s fall of 18.9%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of 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 9.58X, below the S&P 500’s 10.71X and above the sector’s 7.54X.
In the past five years, the industry has traded as high as 20.64X, as low as 6.26X, with a median of 10.52X, as the chart below shows.
Enterprise Value/EBITDA (EV/EBITDA) Ratio
Enterprise Value/EBITDA (EV/EBITDA) Ratio
Bottom Line
In short, renewed trade war fears and persistent softness in commodity prices cast a pall over the Zacks Fertilizer industry. While the U.S.-China trade spat is affecting crop prices, weak global demand and supply glut are dragging phosphate prices down. These may affect profitability of fertilizer companies in the near term.
The Scotts Miracle-Gro Company (SMG - Free Report) : The Marysville, OH-based company, carrying a Zacks Rank #2, has an expected earnings growth of 14.6% for the current fiscal year. Also, the consensus EPS estimate for the current fiscal year has climbed 1.2% over the past month.
Price and Consensus: SMG
Intrepid Potash, Inc. (IPI - Free Report) : This Denver, CO-based company carries a Zacks Rank #2. It has an expected earnings growth of 122.2% for the current year. Also, the consensus EPS estimate for the current year has increased 5.3% over the past month.
Price and Consensus: IPI
CF Industries Holdings, Inc. (CF - Free Report) : Based in Deerfield, IL, the stock currently carries a Zacks Rank #3. It has an expected earnings growth of 58.1% for the current year. It also has an estimated long-term earnings growth rate of 6%.
Price and Consensus: CF
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
Image: Bigstock
Fertilizers Industry Outlook: Near-Term Prospects Bleak
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, potash, nitrogen fertilizers, including urea, ammonia and urea ammonium nitrate, as well as other nitrogen products, to help farmers improve crop yield.
Let’s take a look at the industry’s three major themes:
Zacks Industry Rank Reflects Gloomy Prospects
The Zacks Fertilizers industry is part of the broader Zacks Basic Materials sector. It carries a Zacks Industry Rank #171, which places it at the bottom 33% 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 bleak 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.
Despite the industry’s weak near-term prospects, we will present a few stocks that you may want to hold in your portfolio. But, before that, it’s worth taking a look at the industry’s stock market performance and current valuation.
Industry Tops Sector & Lags S&P 500
The Zacks Fertilizers industry has topped the broader Zacks Basic Materials sector over the past year. However, it trailed the Zacks S&P 500 composite.
The industry has declined 15.7% compared with the S&P 500’s rise of 2.2% and the broader sector’s fall of 18.9%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of 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 9.58X, below the S&P 500’s 10.71X and above the sector’s 7.54X.
In the past five years, the industry has traded as high as 20.64X, as low as 6.26X, with a median of 10.52X, as the chart below shows.
Enterprise Value/EBITDA (EV/EBITDA) Ratio
Enterprise Value/EBITDA (EV/EBITDA) Ratio
Bottom Line
In short, renewed trade war fears and persistent softness in commodity prices cast a pall over the Zacks Fertilizer industry. While the U.S.-China trade spat is affecting crop prices, weak global demand and supply glut are dragging phosphate prices down. These may affect profitability of fertilizer companies in the near term.
We are presenting two stocks with a Zacks Rank #2 (Buy) that are poised to grow. There is another stock with a Zacks Rank #3 (Hold) that investors may consider holding on to. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Scotts Miracle-Gro Company (SMG - Free Report) : The Marysville, OH-based company, carrying a Zacks Rank #2, has an expected earnings growth of 14.6% for the current fiscal year. Also, the consensus EPS estimate for the current fiscal year has climbed 1.2% over the past month.
Price and Consensus: SMG
Intrepid Potash, Inc. (IPI - Free Report) : This Denver, CO-based company carries a Zacks Rank #2. It has an expected earnings growth of 122.2% for the current year. Also, the consensus EPS estimate for the current year has increased 5.3% over the past month.
Price and Consensus: IPI
CF Industries Holdings, Inc. (CF - Free Report) : Based in Deerfield, IL, the stock currently carries a Zacks Rank #3. It has an expected earnings growth of 58.1% for the current year. It also has an estimated long-term earnings growth rate of 6%.
Price and Consensus: CF
The Hottest Tech Mega-Trend of All
Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.
See Zacks' 3 Best Stocks to Play This Trend >>