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Near-Term Outlook for Fertilizers Industry Appears 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. They also offer other nitrogen products to help farmers improve crop yield.
Some of the prominent industry players include The Mosaic Company (MOS - Free Report) and Nutrien Ltd. (NTR - Free Report) .
Let’s take a look at the industry’s three major trends:
Lower crop nutrients prices are a headwind. Prices of phosphate have been declining due to higher supply and muted demand amid the coronavirus pandemic. In the near term, phosphate prices are expected to be under pressure amid market weakness. Also, prices of potash are likely to be affected by weaker global demand. Moreover, increased global supply availability due to higher operating rates along with lower global energy prices are building pressure on prices of nitrogen. Soft pricing is likely to hurt margins of companies operating in this space in the near term.
Weak agricultural commodity prices are a roadblock for the near term. Prices of major crops such as soybean and corn remain under pressure, partly due to a supply glut. Moreover, disruptions associated with the outbreak of coronavirus are likely to hurt demand in China, a top consumer of agricultural commodities, in the short term. The deadly outbreak as well as concerns over U.S.-China tensions is keeping prices of corn and soybean low.
Per the U.S. Department of Agriculture’s (USDA) latest outlook, net farm income is projected to rise 3.3% year over year to $96.7 billion in 2020. However, net cash farm income is estimated to decline 9% year over year to $109.6 billion this year. Demand for nitrogen is likely to remain healthy in India, with two global urea tenders in place. Also, lower domestic urea production in Brazil is likely to bump up its import demand this year. Expectations of higher planted corn acres in the United States in 2020 also indicate a rise in crop nutrient demand in North America.
Zacks Industry Rank Reflects Grim Prospects
The Zacks Fertilizers industry is part of the broader Zacks Basic Materials sector. It carries a Zacks Industry Rank #161, which places it at the bottom 36% 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 consider for your portfolio. Before that, it’s worth taking a look at the industry’s stock market performance and current valuation.
Industry Trails Sector & S&P 500
The Zacks Fertilizers industry has lagged the broader Zacks Basic Materials sector and the Zacks S&P 500 composite in the past year.
The industry has declined 27.9% against the S&P 500’s rise of 5.4% and the broader sector’s decline of 8.5%.
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 8.07X compared with the S&P 500’s 11.53X and the sector’s 9.1X.
In the past five years, the industry has traded as high as 20.98X, as low as 5.72X, with a median of 9.31X, as the chart below shows.
Enterprise Value/EBITDA (EV/EBITDA) Ratio
Enterprise Value/EBITDA (EV/EBITDA) Ratio
Bottom Line
Softness in prices of major crop nutrients, including potash and phosphate, is expected to persist in the near term amid a weak global environment. Agricultural commodity prices are also likely to remain under pressure amid abundant supplies. Further, the coronavirus outbreak is expected to hurt demand in China in the short term and impact crop commodity prices.
We are presenting two stocks with a Zacks Rank #1 (Strong Buy) that are poised to grow. There is another stock with a Zacks Rank #3 (Hold) that investors may currently hold on to. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Scotts Miracle-Gro Company (SMG - Free Report) : The Zacks Consensus Estimate for fiscal 2020 earnings for this Marysville, OH-based company has moved up 12.5% in the past 60 days. The company, sporting a Zacks Rank #1, has an estimated earnings growth rate of 30.4% for the current fiscal.
Price and Consensus: SMG
Yara International ASA (YARIY - Free Report) : This Norway-based company sports a Zacks Rank #1. The Zacks Consensus Estimate for its 2020 earnings has moved up 8.1% in the past 60 days.
CF Industries Holdings, Inc. (CF - Free Report) : Based in Deerfield, IL, the company currently carries a Zacks Rank #3. It delivered a positive earnings surprise of 34.8% in the last reported quarter. It also has an estimated long-term earnings growth rate of 6%.
5 Stocks to Soar Past the Pandemic:
In addition to the companies you learned about above, we invite you to learn about 5 cutting-edge stocks that could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of the decade.
Image: Bigstock
Near-Term Outlook for Fertilizers Industry Appears 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. They also offer other nitrogen products to help farmers improve crop yield.
Some of the prominent industry players include The Mosaic Company (MOS - Free Report) and Nutrien Ltd. (NTR - Free Report) .
Let’s take a look at the industry’s three major trends:
Zacks Industry Rank Reflects Grim Prospects
The Zacks Fertilizers industry is part of the broader Zacks Basic Materials sector. It carries a Zacks Industry Rank #161, which places it at the bottom 36% 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 consider for your portfolio. Before that, it’s worth taking a look at the industry’s stock market performance and current valuation.
Industry Trails Sector & S&P 500
The Zacks Fertilizers industry has lagged the broader Zacks Basic Materials sector and the Zacks S&P 500 composite in the past year.
The industry has declined 27.9% against the S&P 500’s rise of 5.4% and the broader sector’s decline of 8.5%.
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 8.07X compared with the S&P 500’s 11.53X and the sector’s 9.1X.
In the past five years, the industry has traded as high as 20.98X, as low as 5.72X, with a median of 9.31X, as the chart below shows.
Enterprise Value/EBITDA (EV/EBITDA) Ratio
Enterprise Value/EBITDA (EV/EBITDA) Ratio
Bottom Line
Softness in prices of major crop nutrients, including potash and phosphate, is expected to persist in the near term amid a weak global environment. Agricultural commodity prices are also likely to remain under pressure amid abundant supplies. Further, the coronavirus outbreak is expected to hurt demand in China in the short term and impact crop commodity prices.
We are presenting two stocks with a Zacks Rank #1 (Strong Buy) that are poised to grow. There is another stock with a Zacks Rank #3 (Hold) that investors may currently hold on to. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Scotts Miracle-Gro Company (SMG - Free Report) : The Zacks Consensus Estimate for fiscal 2020 earnings for this Marysville, OH-based company has moved up 12.5% in the past 60 days. The company, sporting a Zacks Rank #1, has an estimated earnings growth rate of 30.4% for the current fiscal.
Price and Consensus: SMG
Yara International ASA (YARIY - Free Report) : This Norway-based company sports a Zacks Rank #1. The Zacks Consensus Estimate for its 2020 earnings has moved up 8.1% in the past 60 days.
CF Industries Holdings, Inc. (CF - Free Report) : Based in Deerfield, IL, the company currently carries a Zacks Rank #3. It delivered a positive earnings surprise of 34.8% in the last reported quarter. It also has an estimated long-term earnings growth rate of 6%.
5 Stocks to Soar Past the Pandemic:
In addition to the companies you learned about above, we invite you to learn about 5 cutting-edge stocks that could skyrocket from the exponential increase in demand for “stay at home” technologies. This could be one of the biggest buying opportunities of the decade.
See the 5 high-tech stocks now>>