The shares of Nutrien shot up to an all-time high in April 2022 following Russia’s invasion of Ukraine. Russia and its ally Belarus are major producers of potash fertilizer and the war’s economic sanctions hindered their exports.
However, fertilizer prices are subject to a wide variety of factors including weather and crop prices. As a result, potash prices dropped and the stock is now 52% below its 2022 peak.
We feel the firm will rebound over the next few years. It has some of the lowest cost operations in the industry and its large retail operations also lower its exposure to fertilizer prices.
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Moreover, the global population is set to rise from today’s 8 billion to 10 billion by 2050. That will increase the demand for more and better food and drive long-term fertilizer demand.
The stock trades at 10.7 times the company’s 2024 earnings forecast.
NUTRIEN INC. (Symbol NTR; www.nutrien.com) is the world’s largest producer of agricultural fertilizers. It ships about 27 million tonnes annually.
Nutrien took its current form on January 1, 2018, through the merger of fertilizer producer Agrium (old symbol AGU) and its rival Potash Corp. of Saskatchewan (old symbol POT). At the time, Potash Corp. investors owned 52% of the new company, while Agrium shareholders held the remaining 48%.
The merger had one major goal: to let the combined company better compete with larger fertilizer producers in Belarus and Russia. Potash prices had been under pressure since 2013, when Russian producer Urlkali JSC pulled out of its sales partnership with Belarusian Potash Co. Slowing demand from emerging markets amid the resulting flood of supply prompted Potash Corp. and Agrium to launch merger discussions.
First and foremost, the merger let the combined company radically cut costs. That continues to give it a big cushion against traditionally volatile and cyclical fertilizer prices.
What’s more, it let Potash Corp., the world’s largest fertilizer producer by capacity, link up with Agrium’s more stable retail network. Agrium’s retail arm was North America’s biggest for fertilizer, seeds and equipment.
Mining Stocks: Nutrien’s long-term growth trends add safety to the yield and returns
Nutrien’s overall revenue rose 92.8%, from $19.64 billion in 2018 to $37.88 billion in 2022. Most of that gain came in 2021 and 2022 when potash prices jumped 277.2%, from $167 a tonne in 2020 to $630 in 2022 due to sanctions on Russia and Belarus.
Earnings before unusual items also soared 323.8%, from $1.68 billion in 2018 to $7.12 billion in 2022. Due to fewer shares outstanding, earnings per share gained 390.3%, from $2.69 to $13.19.
Nutrien expects demand and prices for nitrogen and phosphate fertilizers will remain steady in 2024.
Considering all those factors, the company’s earnings will probably improve 5.7%, from $4.73 U.S. a share in 2023 to $4.99 U.S. in 2024. The stock trades at 10.7 times that 2024 estimate. That’s an attractive multiple for a global leader with high-quality reserves. The improving earnings will also give Nutrien more flexibility to keep raising your dividend and buying back shares.
The shares yield an attractive 4.0% including a 10.4% hike in the last year and a track record of 5.8% average annual increases over the last five years.
Recommendation in The Successful Investor: Nutrien Ltd. is a buy.
