Potash Corp./Saskatchewan (TSX: POT)(NYSE: POT) is the world’s largest fertilizer company and it is responsible for one-fifth of the global capacity of potash, which is a key nutrient used in the production of fertilizer. Although it is a vital player in the agriculture industry, this has not led to a strong performance in the stock market in 2014, as its shares have risen just 2.8% year to date, underperforming the TSX Composite Index’s 4.5% gain. With this being said, third-quarter earnings are scheduled to be released this week and strong results could be the catalyst it needs to get on top of the market.
Let’s take a look at the current expectations and the other most important statistics to watch for to determine if we should consider initiating long-term positions today or if we should wait to see what the report holds.
Q3 expectations and what to watch for
Third-quarter earnings are scheduled to be released before the market opens on October 23 and the current expectations call for mixed growth. Here’s an overview:
Metric | Expected | Year Ago |
Earnings Per Share | $0.42 | $0.41 |
Revenue | $1.49 billion | $1.52 billion |
Source: Estimize.
The estimates above call for earnings per share to increase 2.4% and revenue to decrease 2% compared to the third-quarter of fiscal 2013; this earnings per share estimate is also in line with Potash’s outlook on the third quarter, which projected earnings per share in the range of $0.35-$0.45. Key metrics aside, here are three other important factors to watch for:
- Fourth-Quarter Outlook: It will be very important for Potash to provide outlook on the fourth quarter that meets or exceeds analysts’ expectations; currently, the consensus estimates call for earnings per share of $0.44 and revenue of $1.57 billion, which would result in year-over-year growth of 41.9% and 1.9%, respectively.
- Full-Year Outlook: While providing sufficient outlook on the fourth quarter, it will also be important for Potash to reaffirm its full-year outlook on fiscal 2014; this outlook, provided in its second-quarter report, calls for earnings per share in the range of $1.70-$1.90, $1.2 billion-$1.4 billion in gross profit from the sale of potash, and $1.0 billion-$1.2 billion in gross profit from the sale of nitrogen and phosphate.
- Potash Pricing: Lastly, watch for the updated price per tonne of potash and make sure it continues to recover. In the second quarter, the average realized potash price was $263 per tonne, an increase of $13 from the first quarter, but this was down significantly from the $356 per tonne reported in the second quarter of fiscal 2013. Recovering potash prices will play a key role in Potash’s long-term growth.
Does Potash represent a long-term opportunity today?
Potash Corp./Saskatchewan is one of the largest agricultural chemical companies in the world, but its stock has not performed accordingly in 2014; it has risen just 2.8% year to date, but it could rally much higher following the release of its third-quarter earnings results on October 23.
Long-term investors should take a closer look at Potash today because it trades at just 17 times forward earnings estimates and has a bountiful 3.9% dividend yield.