Gleacher & Co. took rating aim at some fertilizer companies, including Potash (NYSE:POT), Intrepid Potash (NYSE:IPI) and Agrium (NYSE:AGU).
All of the companies had their earnings per share raised by Gleacher, based on the assumption the companies have or will be able to increase prices in 2010 and 2011.
For Potash Corp., which Gleacher maintained a "Neutral" rating, they are expected to increase potash volume as well as have higher nitrogen and DAP prices.
Gleacher said, "We are raising our 2010 EPS to $5.44 from $5.15 and our 2011 EPS estimates to $7.30 from $6.90, primarily to reflect higher DAP and nitrogen prices, as well as higher potash volume. We maintain our Neutral rating and take-over fair value of $160 which represents 14.5X our 2011 EBITDA and 22X 2011E EPS. Risks to our price target include 1) failure of BHP and POT to come to an agreement regarding BHP's bid; 2) volatile crop prices that could dampen buyer sentiment; 3) failure of potash producers to raise prices."
The maintained their "Buy" on Agrium, also basing that on the probability of pricing power for the three major nutrients.
"We are raising our 2010 EPS by $0.02 to $5.11 and our 2011 EPS by $0.95 to $6.65 on higher nitrogen, phosphate and potash price assumptions," they said.
Concerning Intrepid Potash, they consider their valuation already high, so they downgraded them from "Buy" to "Neutral." That was even with the same reasoning they could also have pricing power for their fertilizer and higher volume too.
Gleacher noted, "We are raising our 2010 EPS by $0.08 to $0.54 and our 2011 EPS by $0.15 to $1.15 on higher potash volume and pricing assumptions, as well as higher langbeinite prices. However, at current valuations, we are no longer aggressive buyers of IPI and thus are downgrading our rating."
Intrepid also has limitations because of their regional parameters.
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