Tags: Agrium | food | price | AGU

Agrium Offers a Ride On Food Price Cycle

By    |   Friday, 04 Nov 2011 12:00 PM

Agrium (AGU) promotes itself as a growth company with outstanding prospects out to at least 2015. Investors should remember, though, that fertilizer and ag supply companies like Agrium have their pricing and sales closely linked to agricultural commodity prices, and that those prices can swing in dramatic cycles.

Agrium is a producer and retailer of nitrogen and potash-based fertilizer products. The company differs from other fertilizer producers in that it has a global retail distribution system with more than 1,300 locations. The retail locations also sell private label seed and crop protection products.

Agrium's retail division brings in almost two-thirds of the company's revenues. Wholesale fertilizer sales are one-third of revenues and the sale of advanced technology fertilizer products are accounted for separately at 3.5 percent of sales.

For the first half of 2011, Agrium generated sales of $9.15 billion, up 46 percent from $6.28 billion in the first half of 2010. Net income from continuing operations was $5.62 per share, up 72 percent from 2010.

Agrium earned $4.63 per share for all of 2010. The consensus earnings estimate for full year 2011 is $9.11.

Still cyclical

A look at the Agrium presentation material shows the company's EBITDA increasing steadily from 2005 until 2015. A closer look show the results from 2006, 2008 and 2009 were not included in the historic results charts. In reality, Agrium earned $3.24 in 2007, $8.31 in 2008, $2.33 in 2009 and the previously mentioned $4.63 in 2010.

Not a path of straight-line growth. Another example of the cyclical nature of Agrium's business is the range of earnings estimates from the Wall Street analysts. The consensus estimate is $9.47 for 2012, but the individual estimates range from under $7 to over $13 per share.

The latest analyst comment on AGU was an upgrade to overweight from neutral from the analysts at J.P. Morgan. Other recent analyst comments have been reiterated buy ratings with target prices above $110 per share.

The company next reports on Nov. 3.

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Agrium (AGU) promotes itself as a growth company with outstanding prospects out to at least 2015. Investors should remember, though, that fertilizer and ag supply companies like Agrium have their pricing and sales closely linked to agricultural commodity prices, and that...
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2011-00-04
Friday, 04 Nov 2011 12:00 PM
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