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Here's Why Intrepid Potash Rose as Much as 16% Today

By Maxx Chatsko - Aug 3, 2018 at 2:02PM

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Oops, Mr. Market admits that he overreacted to the fertilizer producer's second-quarter 2018 earnings results released yesterday.

What happened

Shares of Intrepid Potash (IPI -5.06%) rose as much as 16% today as investors poured back into the stock following a more than 20% drop yesterday, when the fertilizer producer reported second-quarter and first-half 2018 earnings results. While the results were actually pretty good, and demonstrated that the company is executing against its strategy to deliver profitable growth, Wall Street analysts panicked over a miss on the bottom line.

According to Yahoo! Finance, the average of all analyst expectations called for earnings per share of $0.04, but the company delivered a net loss of $0.01. The earnings miss seemed to be a relatively minor detail considering the overall strength of the numbers and management's expectation for even better results in the second half of 2018. So today's pop might be characterized as a proper correction. 

As of 1:34 p.m. EDT, the stock had settled to a 10.4% gain.

Stacks of coins next to a plant on a table.

Image source: Getty Images.

So what

Time heals all wounds, and it turns out Intrepid Potash investors needed only 24 hours to find their salve. The previous day's collapse in share price appeared to be an overreaction even as it was happening, but especially so one day later. That's because Wall Street analysts had time to evaluate the first-half 2018 results and second-half 2018 expectations from a handful of other fertilizer producers. Looking around the industry, it's clear that global markets are demonstrably stronger now than they've been in years.

For instance, Nutrien delivered a 19% improvement in EBITDA in the second quarter of 2018 compared to the year-ago period. The company delivered sizable EBITDA growth from all three major agricultural nutrients and expects global grain-inventory levels to finish the year 11% lower than they were at the end of 2017, which hints that fertilizer demand will be strong for the upcoming planting seasons. 

Similarly, CF Industries saw a 54% improvement in adjusted EBITDA in the second quarter of 2018 compared to last year. The company also provided some nuggets of optimism for investors, including that Chinese nitrogen fertilizer exports sank 74% in the first half of this year compared to the year-ago period. That should help the global market find balance between supply and demand more quickly.

Now what

While Intrepid Potash is significantly smaller than global Goliaths like Nutrien and CF Industries, it's still well positioned to ride improving market dynamics for potash and langbeinite (sold under the brand name Trio) fertilizers. It has a little more ground to make up than its peers, as it was unprofitable in the first half of 2017, but the move toward sustainable operations is clearly evident from the huge improvement in operating cash flow in the first half of this year. If that keeps up through the end of 2018, then long-term investors stand to benefit from their patience.

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