Potash shares leap on upgrade Posted: December 27, 2007, 2:27 PM by Peter Koven Market Call, Industry
Potash Corp. of Saskatchewan has "unprecedented pricing power" in a very tight market, according to Goldman Sachs analyst Edlain Rodriguez. He upgraded the stock to "buy" from "neutral" and hiked his price target from US$122 a share all the way to US$180. The shares rose as much as 8% Thursday following the upgrade.
"With limited potash and phosphate capacity additions, strong demand, and more scope for earnings revisions on rising prices, the risk/reward [on Potash shares] is still compelling," he wrote in a note to clients.
Mr. Rodriguuz expects fertilizer producers to maintain their pricing momentum in 2008 and take advantage of a very tight market. Of all the nutrients, he expects potash to have the most upside, with declining North American inventories and growing demand. He noted that potash producers recently announced a price increase of US$88 per metric tonne starting March 1, 2008. That follows increases for October, December and January.
Mr. Rodriguez is also bullish on Agrium Inc., which is generating "significant multiple expansion" as it transforms from a nitrogen producer to a fully-integrated agriculture giant. He raised his target on the stock to US$80 a share from US$58 a share due to the recent acquisition of UAP Holdings Corp., which greatly expands Agrium's retail presence in the United States.
