Potash Corp: Two Analysts, Two Very Different Opinions

If you were playing potash stocks in 2013, you ended up paying for it.

Reuters

Potash Corp of Saskatchewan (POT), for instance, lost 16% last year, while Mosaic (MOS) dropped 15%, Intrepid Potash (IPI) plunged 26% and Agrium (AGU) declined 5.9%.

Will 2014 be better? Raymond James’ Steve Hansen and Daniel Chew think so. They upgraded shares of Potash Corp of Saskatchewan (POT) to Outperform from Market Perform as potash prices seem to have settled. Hansen and Chew explain:

We are increasing our target price to US$37.00 (vs. US$30.00 previously) and raising our rating…based upon our view that the most ominous clouds overhanging the potash sector are beginning to lift—even though the outlook remains opaque and any 'recovery process' is likely to be slow, in our view…

Last week both Canpotex and Uralkali both announced 700k mt 1H14 supply contracts to China. While Canpotex pricing was not disclosed, we presume it landed in-line with Uralkali's $305/mt settlement. Importantly, we believe most industry stakeholders will regard these contracts as the new global 'floor price'. Meanwhile, recent developments suggest that [Uralkali] and Belaruskali seem intent on repairing their former marketing relationship—even if puzzling contradictions remain outstanding.

Barclays’ Matthew Korn and Kimberly Teller aren’t so sure. They write:

Valuation multiples of potash producers [Potash, Mosaic, and Intrepid Potash] appear to be pricing in anticipation that volumes and prices are likely to improve after the recent $305/tonne "floor" set by the Uralkali/China contract. We remain more skeptical until we see more tangible evidence that the need for restocking plus price actual elasticity will lead to a more than just a bounce back to prior demand levels.

Korn and Teller downgraded Mosaic to Equal Weight from Overweight, but expect CF Industries (CF), Agrium and Bunge (BG) to do well in 2014, despite no obvious catalysts.

Shares of Potash have gained 1.1% to $32.10 today at 3:32 p.m., while Mosaic has dropped 1.3% to $44.80, Intrepid Potash has declined 1.5% to $15.64, Agrium is off 0.9% at $88.42 and Bunge has slid 0.6% to $77.16. CF Industries has risen 0.4% to $233.50.