Potash Corp.'s (POT - Free Report) stock looks promising at the moment. Potash Corp., which currently sports a Zacks Rank #1 (Strong Buy), is the world’s biggest fertilizer company by capacity.
We are positive on the company’s prospects and believe that the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead.
With respect to share price performance, Potash Corp.’s shares have gained 0.2% over a year, outperforming the Zacks categorized Fertilizers industry’s decline of 0.7%.
Let’s delve deeper into the factors that make this fertilizer giant an attractive investment option.
What’s Working in Favor of POT?
Upbeat Outlook: Potash Corp., in Apr 2017, raised its guidance for 2017 on the back of strong first-quarter results. It now expects earnings in the range of 45–65 cents per share (up from prior view of 35–55 cents per share) for the full-year 2017.
The company also raised the lower end of its potash sales volume outlook for 2017 to a range of 8.9–9.4 million tons from 8.7–9.4 million expected earlier. It also projects potash gross margin of $600–$800 million for the year (versus prior forecast of $550-$800 million). Potash Corp. expects fertilizer affordability and the need to replenish soil nutrients to contribute to healthy potash demand in North America through the balance of 2017.
Estimates Moving Up: Annual estimates for Potash Corp. have moved north over the past 60 days, reflecting analysts’ confidence on the stock. Over this period, the Zacks Consensus Estimate for 2017 has increased by around 20% to 60 cents per share. The Zacks Consensus Estimate for 2018 has also moved up 1.6% over the same timeframe to 64 cents.
Superior Return on Equity (ROE): Potash Corp.’s ROE of 5.5%, as compared with the industry average of 4.8%, manifests the company’s efficiency in utilizing shareholder’s funds.
Healthy Growth Prospects: The Zacks Consensus Estimate for earnings for Potash Corp. for 2017 is currently pegged at 60 cents, reflecting an expected year-over-year growth of 17.3%. Moreover, earnings are expected to register a 6.7% growth in 2018. The stock also has a long-term (3-5 years) expected earnings per share (EPS) growth rate of roughly 6.5%.
Growth Drivers: Potash Corp. is expected to benefit from improving demand for potash. While market fundamentals have been challenging in 2016, the company sees an improved environment in 2017 with higher expected demand for potash across key consumer markets. Potash Corp. saw healthy demand for potash in the first quarter and expects consistent customer engagement through 2017, supported by healthy consumption trends.
The proposed merger with Agrium (AGU - Free Report) is also expected to create significant cost and operational synergies. Potash Corp. and Agrium, in Sep 2016, agreed to merge their businesses to create a fertilizer powerhouse with a pro forma enterprise value of $36 billion. The merger will create the world’s largest crop nutrient supplier and the integrated company will be better placed to counter headwinds in the crop nutrient markets.
The combined company will also be better positioned to serve customers and growers with low-cost, high-value products and services and complementary assets. The integrated company is expected to generate as much as $500 million of annual operating synergies. Roughly $250 million of these synergies are expected to be achieved by the end of the first year, following the completion of the transaction.
Other Stocks to Consider
Other top-ranked stocks in the basic materials space include Huntsman Corporation (HUN - Free Report) and Kronos Worldwide, Inc. (KRO - Free Report) , both sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
Huntsman has an expected long-term earnings growth of 7%.
Kronos has an expected long-term earnings growth of 5%.
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