Tickers in this Article: AGU, CF, ANDE, BG, BHP
Canada-based global agriculture and fertilizer company Agrium (NYSE:AGU) now expects its second quarter results to substantially exceed earlier forecasts. A confluence of strong agricultural fundamentals, higher pricing and retail demand have boosted forecasts.

TUTORIAL: Index Investing

Agrium's New Outlook
The company previously expected to earn $3.38 to $3.88 per share from continuing operations in the second quarter, but has now revised those figures to an EPS range of $4.10 to $4.40. Agrium's business mix includes a retail component for farm products as well as the supply of specialty fertilizers for the Canadian and US markets. It's probably best known, however, as a major global producer of nitrogen, potash and phosphate, the three major macronutrient fertilizers.

Other Fertilizer and Agricultural Stocks
CF Industries Holdings
(NYSE:CF), manufacturer of nitrogen and phosphate fertilizers, posted record first quarter earnings. The stock has recently been floating around its 52-week high. It has finally integrated its Terra Industries purchase after fighting off a takeover bid from Agrium. Despite CF's stock price, its forward PE was recently only 9.4.

A unique agriculture business, the Andersons (Nasdaq:ANDE), which is a grain, fertilizer and retail business, also reported recent record earnings. Its first quarter revenue rose to $1 billion from $722 million in the quarter a year ago, with strong analyst estimates for the rest of 2011.

The larger Bunge Limited (NYSE:BG), known for its oilseeds and grain processing trades at an 11.5 PE ratio, while the Andersons trades at 10.5 times earnings. A mention of BHP Billiton Ltd. (NYSE:BHP) as a possible oversold coal stock could also be a double play with BHP's potash operations included. For Agrium, its recent first quarter earnings of $1.02 a share and net income of $160 million compared to its fiscal 2010 Q1 loss of $1 million, or 1 cent a share, underscores that its business has been revving up along with the others. Fertilizer producers are reaping the benefits of the robust food producing business.

Market and Economic Headwinds
With the major stock averages pulling back since May, troubling economic news such as a potential consumer slowdown due to higher gas prices and unemployment, and the massive cloud of the global overhang of the Greek debt crisis, naturally investors have been concerned about agricultural stocks, too. Many have felt that the ag boom, along with the general commodity boom, is over. However, Agrium's positive news and increased guidance at least is an encouraging note.

The Bottom Line
Agrium's forecast confirms that the global demand for fertilizer and agricultural products is still promising - even in the face of the current global economic headwinds - and is likely to continue through this year. This ongoing surge in agricultural growth looks more like a sustained push forward in a vital sector and not just a mere boom or some bubble getting ready to burst. The growth in demand for food production is real. Ag stocks, such as Agrium, may benefit when investors fully recognize those fundamentals or when buyers return in force to the stock market. (Learn how this key metric is calculated and how it is used to judge market performance. Check out Earnings Forecasts: A Primer.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus

Trading Center