Update Agrium in my Watch List

06/20/2011 4:52 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

Today, June 20, Agrium (AGU) upped its guidance for second quarter operating earnings and for the first half of 2011. The company raised guidance for the current quarter to $4.10 to $4.40 a share from the previous guidance of $3.38 to $3.88.

The increased guidance comes from two sources. First, Agrium sees increased prices in the fertilizer market for through the second quarter. Global demand for agricultural commodities has been strong in 2011 with prices—and farm profits—following. That’s driving higher demand for fertilizer. (Corn has been selling near record highs and corn requires especially heavy applications of fertilizer.)  Second, Agrium sees a small drop in retail fertilizer sales in the second quarter than it had feared earlier. Unlike most of its competitors Agrium doesn’t just sell in the commodity market but also sells at the retail level, owning 750 farm stores in the United States that sell fertilizer, crop chemicals, and seeds directly to farmers. (Agrium is, in fact, the largest farm retailer in the United States. And has recently acquired 400 retail farm stores in Australia.) Poor weather across the Midwest has had relatively little impact on sales at its farm retail stores.

Agrium is on track to earn better than $8.25 a share in 2011. That makes the current price of $82.98 even after today’s 4.1% move extremely reasonable. (Part of the size of today’s move is making up for the drop in all fertilizer shares recently on rumblings that Congress may cut back or eliminate ethanol subsidies.) The stock trades at just 10 times forecast earnings. I'd put a target price of $108 a share on the stock. That would bring the price-to-earnings ratio to a little bit above 13. In 2010 the stock traded at a multiple of 19.8.

These shares are in my Jim’s Watch List. I’d look to add them to my portfolio on any further weakness during the summer swoon.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/ , may or may not now own positions in any stock mentioned in this post. The fund did own shares of Agrium as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/

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