Friday, October 23, 2009

Potash Corp. downgraded, risks remain (POT)

From the Financial Post:

The tough times continue for Potash Corp. of Saskatchewan Inc.

After multiple profit warnings and a mediocre third-quarter earnings report, CIBC World Markets analyst Jacob Bout cut the stock to "sector performer" from "outperformer", noting that there are few near-term catalysts for it. He left his price target at US$110 a share.

"While we still like the fundamentals of the agricultural industry and the outlook for the potash market over the next 3-5 years, we continue to have concerns about potash pricing and demand over the next 12-18 months and see no reason to raise our 2010 or 2011 estimates or price target," he wrote in a note to clients.

Potash Corp. is forecasting global potash demand of 50 million tonnes in 2010. But Mr. Bout warned it could be "substantially lower" as farmers continue to under-apply fertilizer to their crops. He wrote that it is not until year three of under-application that crop yields suffer, and only China is currently entering year three (the United States and Brazil are both entering the second year). So he does not expect "normalized" potash demand to return until 2011.

Since Potash Corp. is a swing producer, it gets hit hard in a downturn; Mr. Bout expects sales volumes of 7.2 million tonnes next year, well below its peak of 9.4 million tonnes in 2007....MORE

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