Shares of main fertilizer corporations CF Industries (NYSE:CF), Mosaic Industries (NYSE:MOS), and Nutrien (NYSE:NTR), have outperformed the broader market. These corporations gained from the spike in fertilizer costs triggered by the Western sanctions in opposition to Belarus potash companies and the Russia-Ukraine battle. Heading into the Q3 outcomes of those fertilizer corporations, Wall Road analysts appear cautiously hopeful about their prospects.
Fertilizer costs have been fairly risky just lately and have fallen from the highs seen earlier this yr. Nevertheless, they’re nonetheless excessive when in comparison with the prior yr.
A latest Bloomberg report highlighted that fertilizer costs are underneath stress as farmers are pulling again their purchases and reconsidering choices round fertilizer purposes as a result of greater costs. The report additionally famous that Brazilian farmers are additionally halting their purchases, driving down fertilizer costs additional. Costs in Brazil are additionally down as a result of piled-up inventories because the nation imported fertilizers at a document tempo this yr to make sure sufficient provide.
In the meantime, Reuters reported that a number of fertilizer producers in Europe are shutting down operations as a result of hovering pure fuel costs. The foremost element of nitrogen-based fertilizers is ammonia, the manufacturing of which requires vital quantities of pure fuel. This example in Europe is favorable for U.S. nitrogen fertilizer corporations as it’ll result in greater exports and assist excessive costs.
Amid these supply-demand dynamics, fertilizer costs might stay risky over the close to time period.
CF Industries Holdings (CF)
CF Industries is without doubt one of the world’s largest producers of nitrogen-based fertilizers. The corporate’s Q2 EPS jumped to $5.58 from $1.14 and income surged 113.4% to $3.4 billion, due to greater costs pushed by robust demand and restricted world provide.
CF Industries is predicted to announce its Q3 outcomes on November 2. Analysts anticipate Q3 income to develop 75.5% to $2.39 billion and adjusted EPS to return in at $3.34.
What’s the Goal Worth for CF Industries Inventory?
Earlier this month, RBC Capital analyst Andrew Wong upgraded CF Industries inventory to Purchase from Maintain and elevated the worth goal to $135 from $110, given the improved outlook for nitrogen fertilizer.
General, Wall Road has a Average Purchase score on CF Industries inventory primarily based on six Buys, 4 Holds, and one Promote. The typical CF inventory value goal of $116.36 suggests 8.8% upside potential. Shares have surged by a formidable 51.2% year-to-date.
The Mosaic Firm (MOS)
Mosaic is a number one producer of phosphate and potash fertilizer. Mosaic’s Q2 income elevated 92% to $5.4 billion and adjusted EPS jumped 211% to $3.64 amid a good demand backdrop.
The corporate is slated to announce its Q3 outcomes on November 7. Analysts anticipate the corporate’s Q3 adjusted EPS to extend over 150% year-to-over to $3.38 and income to rise 68.3% to $5.75 billion.
Is MOS a Good Inventory to Purchase?
Not too long ago, RBC analyst Wong downgraded Mosaic to a Maintain from Purchase and slashed the worth goal to $65 from $85 as he feels that the corporate faces dangers in phosphate output. Wong said, “We nonetheless see fertilizer markets as very supply-constrained, however shift our choice to nitrogen and potash versus phosphate.”
Wong famous that phosphate contributes practically 40% of Mosaic’s EBITDA, whereas potash generates practically 50%. Nevertheless, the analyst sees much less potential for greater phosphate manufacturing regardless of favorable elements that assist costs, like excessive crop costs, China’s export restrictions, and provide constraints. The analyst additionally highlighted the impression of hurricane Ian on Mosaic’s phosphate manufacturing.
All in all, consensus amongst analysts for Mosaic inventory is a Average Purchase primarily based on 4 Buys, three Holds, and one Promote. The typical MOS inventory value prediction of $66.63 implies 24.5% upside potential. MOS inventory has rallied 36.4% year-to-date.
Nutrien Ltd. (NTR) (TSE:NTR)
Canada-based Nutrien is the most important producer of potash (primarily based on capability) and one of many main producers of nitrogen and phosphate fertilizers. Provide restrictions on potash from Russia and Belarus saved potash costs at traditionally excessive ranges within the first half of 2022, benefiting Nutrien immensely.
Increased realized promoting costs throughout the corporate’s crop nutrient companies and strong efficiency of the retail enterprise drove 49% rise in Q2 gross sales to $14.5 billion. Adjusted EPS skyrocketed 181% to $5.85.
Nutrien is scheduled to announce its Q3 outcomes on November 2. Wall Road expects adjusted EPS to rise 191% to $4.02. Income is projected to develop by practically 51% to $8.75 billion.
Is Nutrien Inventory a Purchase?
Not too long ago, Financial institution of America Securities analyst Steve Byrne reiterated a Purchase score on Nutrien inventory however lowered the worth goal to $130 from $141 to mirror a softer potash and phosphate outlook. Nevertheless, the analyst feels that the impression on NTR’s profitability is “considerably cushioned by a extra steady Retail and stronger Nitrogen enterprise.”
On TipRanks, Nutrien inventory has a Average Purchase consensus score that breaks down into eight Buys, three Holds, and one Promote. The typical NTR inventory value goal of $109.82 implies practically 32% upside potential. Nutrien’s U.S.-listed shares have risen practically 11% year-to-date.
Conclusion
Wall Road is cautiously optimistic about fertilizer shares due to demand destruction as a result of excessive costs and fears of a looming recession. Nevertheless, provide constraints amid the Russia-Ukraine battle are anticipated to maintain provide tight and assist excessive costs.
The upcoming outcomes of main fertilizer corporations and their administration’s commentary on the near-term outlook will give traders extra readability concerning the progress prospects of CF Industries, Mosaic, and Nutrien.
