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Bear of the Day: Agrium (AGU)

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We last wrote up Agrium (AGU) as a ‘Bear of the Day’ about a month ago, and since then, the company has posted a fresh earnings report. The company actually managed to beat earnings estimates in its release a few weeks ago, including a surprise profit.

While this appears bullish, it is important to note that sales struggled in several major segments, and overall gross profit was sharply lower when compared to the year ago time frame. Additionally, AGU ratcheted down expectations for its full year profit, pushing down EPS estimates to between $5.25-$6.25 a share, down from their prior view of $5.50-$7.00 a share. And while AGU boosted the range of crop nutrient sales a tad to the optimistic side, the company did cut full year potash production levels too.

Given these numbers, it shouldn’t be too surprising that AGU finds itself back in bear of the day territory. In fact, analysts have once again embarked on a series of estimate cuts which could continue to spell doom for AGU shares in the near term.

Recent Estimates

In the past thirty days, five estimates have gone lower for the current quarter, while not a single one has been revised higher. We see a similar trend for the current year and next year time frames too, with six estimates going lower in the past thirty days and not a single one higher.

The magnitude of these cuts has also been pretty severe, as the current quarter and current year consensus estimates have fallen by over 7% in the past few months. Meanwhile, the next quarter period is especially poor, with the consensus falling by about 27% in the past two months alone.

Thanks to these big cuts in expectations, current quarter and current year growth rates are expected to come in at -15% for each time period. Additionally, the next quarter period is looking at a nearly 42% drop in earnings, when compared to the year ago time frame.

With this kind of outlook, a strong earnings beat is pretty meaningless as investors are focusing in on the future instead. And it definitely doesn’t seem great for this company, or the industry at large, given that it has a bottom 10% industry rank as well.

No wonder we currently have AGU as a Zacks Rank #5 (strong sell) and are looking for more underperformance from this stock in the near term.

Other Choices

The Fertilizer segment doesn’t have a single stock in buy territory, at least at time of writing. Thus, it might be a good idea to look elsewhere in the materials world for better plays.

One that could be intriguing right now is the chemical space, as there are several top ranked companies in this area of the market. A company worth looking further into in this space is definitely Albermarle (ALB - Free Report) , a Zacks Rank #1 (Strong Buy).

Not only is ALB expected to post strong growth this quarter, but it has been seeing rising earnings estimates as of late too. So if you are looking for a better choice in the materials space, consider ALB and other chemical names over the fertilizer world and AGU, at least until we see a turnaround in expectations or a bottoming of the earnings cycle.

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