The sanctions on Russia have removed a major competitor for this firm’s products even as demand is increasing, making this a top pick for us despite its recent price rise.
Meanwhile the firm is building new plants to address that rising demand.
The stock trades at just 4.6 times the company’s 2022 earnings forecast.
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NUTRIEN LTD. (Toronto symbol NTR) is the world’s largest producer of agricultural fertilizers. It took its current form on January 1, 2018, when Agrium Inc. (old symbol AGU) merged with rival Potash Corp. of Saskatchewan (old symbol POT).
Potash Corp. shareholders received 0.40 shares in Nutrien for each POT share they held; Agrium investors received 2.23 shares for each AGU share.
Nutrien continues to benefit from rising prices for potash and other fertilizers, particularly in the wake of economic sanctions on Russia and Belarus in response to Russia’s invasion of Ukraine. Together, Russia and Belarus account for 40% of global potash production.
As a result, revenue in the three months ended March 31, 2022, jumped 64.4%, to $7.66 billion from $4.66 billion a year earlier (all amounts except share price in U.S. dollars). That topped the consensus forecast of $7.59 billion.
The higher revenue and better efficiency caused earnings to shoot up to $2.70 a share (or a total of $1.50 billion) from $0.29 a share (or $165 million). However, that missed the consensus estimate of $2.75.
Due to the sanctions on Russia and Belarus, Nutrien now plans to produce between 14.5 million and 15.1 million tonnes of potash for all of 2022. That’s 1 million tonnes more than its earlier forecast.
That level is 20% more than the company’s 2020 output. Most of that extra production will come in the second half of the year. While the extra supply will dampen prices, Nutrien should continue to benefit from its improving market share.
Thanks to the higher output and prices, the company raised its full-year earnings outlook to between $16.20 and $18.70 a share from its previous outlook of $10.20 to $11.80 a share. The stock has jumped 38% in the past year, but still trades at an attractive 4.6 times the midpoint of that new range.
The company is now planning to build a new plant in Louisiana that would produce ammonia, a form of nitrogen fertilizer and a carbon-free fuel.
The facility, which is still in the design phase, would cost $2 billion U.S. That’s equal to 5% of Nutrien’s $56.4 billion (Canadian) market cap. A deal to sell 40% of its output to Japan’s Mitsubishi Corp. helps offset the risk of this project.
If Nutrien decides to proceed, construction should begin in 2024 with full production expected by 2027.
Nutrien is also using its strong earnings to reward investors. It recently increased its quarterly dividend by 4.3%, to $0.48 U.S. a share from $0.46 U.S. The new annual rate of $1.92 U.S. yields 2.4%. The company also plans to buy back up to $2 billion U.S. of its outstanding shares this year.
The company’s TSI Dividend Sustainability Rating is Above Average.
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