AGRIUM INC. $67 – Toronto symbol AGU

AGRIUM INC. $67 (Toronto symbol AGU; Aggressive Growth Portfolio, Resources sector; Shares outstanding: 157 million; Market cap: $10.5 billion; Price-to-sales ratio: 1.1; Dividend yield: 0.2%; SI Rating: Average) makes fertilizers from natural gas at 10 plants in North America and Argentina. It also produces other fertilizers, such as potash and phosphate, from mines in Ontario, Alberta, Saskatchewan and Idaho.

Agrium sells its products to industrial users and individual farmers through 1,000 retail stores in Canada, the U.S., Argentina and Chile. Agrium’s retail outlets cut its reliance on bulk fertilizer sales.

Thanks to rising fertilizer prices, Agrium’s sales rose 204.5%, from $3.3 billion in 2005 to $10.0 billion in 2008 (all amounts except share price and market cap in U.S. dollars). However, sales fell 9.0%, to $9.1 billion on lower 2009 fertilizer prices.

Earnings fell 61.3%, from $2.12 a share (or a total of $283.0 million) in 2005 to $0.82 a share (or $109.1 million) in 2006. The drop was mainly caused by production problems and higher natural-gas costs. However, earnings shot up to $8.34 a share (or $1.3 billion) in 2008. Earnings then fell 72.1%, to $2.33 a share (or $366.0 million), in 2009. Cash flow per share fell from $3.27 in 2005 to $2.09 in 2006, but jumped to $9.81 in 2008. Cash flow then dropped 70.5%, to $2.89 a share, in 2009.

Agrium still wants to buy CF

Agrium is still trying to buy U.S.-based fertilizer maker CF Industries Holdings Inc. (New York symbol CF). This purchase would cost Agrium $5.2 billion in cash and stock. Agrium holds cash of $933.0 million, or $5.94 a share. Its long-term debt of $1.7 billion is just 20% of its market cap.

CF continues to reject Agrium’s offer as inadequate. However, Agrium aims to replace several of CF’s directors with its own nominees. That could prompt CF to negotiate a friendly deal.

Agrium trades at 14.0 times the $4.50 U.S. a share it will probably earn this year, and at 10.2 times its forecast 2010 cash flow of $6.15 U.S. a share. The $0.11 U.S. dividend yields 0.2%.

Agrium is a buy.