Will PotashCorp Bounce Back Over Mosaic and Agrium in 2014?

PotashCorp (NYSE: POT  ) had a horrible 2013, completely missing the bull market rally and suffering losses of 16% that left it lagging behind rivals Mosaic (NYSE: MOS  ) and Agrium (NYSE: AGU  ) . But with the negative news events that led to PotashCorp's poor performance behind it, can the company bounce back and make the most of potentially improving conditions in the fertilizer industry going forward?

The potash market suffered a huge setback in the middle of 2013 when the Belarus Potash Company broke up. With that entity being one of two major exporting and marketing groups that together control about 70% of potash market activity, the move from Belarus member Uralkali to separate from partner Belaruskali led to falling potash prices, and investors feared that the resulting shock to the market would inevitably lead to lower profits for PotashCorp and its peers. Let's take a closer look at PotashCorp's prospects for 2014.


Source: PotashCorp Scotiabank Agriculture & Fertilizer Conference Presentation, September 2013.

Stats on PotashCorp

Average stock target price

$31.86

Full-year 2013 EPS estimate

$2.12

Full-year 2014 EPS estimate

$2.01

Full-year 2013 sales growth estimate

(15.7%)

Full-year 2014 sales growth estimate

(3.9%)

Forward P/E

16.4

Source: Yahoo Finance.

What's in store for PotashCorp in 2014?
As you can see, analysts aren't very optimistic about PotashCorp's prospects for rebounding in 2014. The current target stock price is actually 4% below current levels, suggesting that even the bounce that PotashCorp shares have already seen is more than the company deserves based on fundamentals. By contrast, price targets for Mosaic and Agrium are much more favorable, implying considerable upside from current prices.

Perhaps the most interesting news for PotashCorp in 2014 came at the very end of last year, when the Russian ambassador to Belarus said that Uralkali was ready to cooperate with Belaruskali again. If that leads to the reformation of the Belarus Potash Company, then investors obviously hope that potash prices will return to their early 2013 levels, and that PotashCorp, Mosaic, and Agrium will all make back the ground they lost after the partnership's breakup last year.

Another thing to watch for from the potash industry is whether PotashCorp's rivals continue to diversify away from potash toward other types of fertilizers. Mosaic made a much larger push into phosphate fertilizers last year when it spent $1.2 billion in cash to buy the phosphate business of fertilizer giant CF Industries (NYSE: CF  ) , taking advantage of the geographical proximity of the two companies' phosphate assets to reap synergies from the transaction. At the same time, Agrium has traditionally played only a minor role in the Canpotex marketing group which includes it, Mosaic, and PotashCorp, with Agrium's retail business selling not only fertilizer but also seeds, pesticides, and other farm products and playing a more essential role in its profits.

In determining the direction of potash prices for 2014, demand from key markets China, India, and Brazil will be a major factor. Late last month, China's state-owned Sinochem extended its potash supply agreement with the Canpotex group, with terms to provide 1 million tons or more of potash for the 2014 year. Moreover, with India having been in a demand-deficit position in recent years, any reversal there could add further demand to the global potash industry.

PotashCorp has several reasons why it could climb in 2014, with any progress on reforming the Belarus Potash Company potentially supporting long-term price increases. With many contracts locked in, don't expect price increases to be sudden, but PotashCorp's long-term prospects could still be bright if the potash market hits bottom and starts turning around this year.

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