Increasing food prices due to supply chain constraints and the impact of climate change on agricultural output should benefit the fertilizers industry significantly. Nevertheless, rising energy prices in Europe and China, plant shutdowns, and extreme weather conditions have hit the fertilizer market hard.
The global fertilizer market is expected to grow at 5% CAGR to $323.38 billion by 2028. And because rising food prices should drive the demand for fertilizers, well-established stocks Nutrien Ltd. (NTR) and Yara International ASA (YARIY) should benefit.
However, given the current challenges facing the industry, we think fundamentally weak stocks in this space—Sociedad Química y Minera de Chile S.A. (SQM) and The Scotts Miracle-Gro Company (SMG)—could suffer a decline in the near term.
Stocks to Buy:
Nutrien Ltd. (NTR)
NTR is a Canada-based provider of crop inputs and services. The company operates through four segments—Retail Ag Solutions (Retail); Potash; Nitrogen; and Phosphate. It also distributes crop nutrients, crop protection products, seeds, and merchandise products through approximately 2,000 retail locations worldwide.
On July 29, 2021, NTR and EXMAR, an independent shipping group that serves the international gas and oil industry, signed a collaboration agreement to jointly develop and build a low-carbon, ammonia-fueled vessel. The companies expect deep decarbonization of the maritime industry to be achieved before 2030.
NTR’s sales for its fiscal second quarter, ended June 30, 2021, increased 14.7% year-over-year to $9.76 billion. The company’s gross profit came in at $2.88 billion, up 32.8% from the prior-year period. Its adjusted EBITDA was $2.22 billion for the quarter, representing a 28.7% rise from the prior-year period. NTR had $1.79 billion in cash and cash equivalents as of June 30, 2021, up 26.8% from the prior-year period.
Analysts expect NTR’s EPS to improve 178.9% year-over-year in the current year to $5.02. It surpassed consensus EPS estimates in three of the trailing four quarters. A $25.15 billion consensus revenue estimate for the current year represents a 25.4% rise year-over-year. Analysts expect the stock’s EPS to rise at a 33% rate per annum over the next five years.
NTR’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Sentiment. Click here to see additional NTR’s ratings for Quality, Growth, Value, Momentum, and Stability. Of the 31 stocks in the Agriculture industry, NTR is ranked #6.
Note that NTR is one of the few stocks handpicked by our Chief Growth Strategist, Jaimini Desai, currently in the POWR Growth portfolio. Learn more here.
Yara International ASA (YARIY)
Based in Norway, YARIY provides environmental and industrial solutions internationally. It is also involved in the operation of phosphate mines, trade, and shipping of ammonia, sale of fertilizers, and logistics services.
On October 5, 2021, YARIY, JERA Co., Inc, Japan’s largest power generation company, and Idemitsu Kosan, one of Japan’s leading suppliers of petroleum products, agreed to explore the establishment of a domestic clean ammonia distribution network and bunkering business, accelerating Japan’s green energy transition in energy, shipping, and industrial sectors. Expanding this collaboration brings an extensive distribution network for petroleum products, bunkering capabilities, and import terminals.
For its fiscal second quarter, ended June 30, 2021, YARIY’s revenue and other income increased 37.6% year-over-year to $3.95 billion. The company’s operating income was $477 million, representing a 42.4% year-over-year improvement. Its net income came in at $18.53 billion, up 141.7% from the prior-year period. Its EPS increased 153% year-over-year to $2.10. And, as of June 30, 2021, the company had $1.59 billion in cash and cash equivalents, up 16.2% from the prior-year period.
The $15.12 billion consensus revenue estimate for the current year represents a 28% rise from the prior-year period.
YARIY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in a proprietary rating system.
The stock has an A grade for Value, and a B grade for Stability and Quality. Click here to see the additional ratings for YARIY (Growth, Sentiment, and Momentum). YARIY is ranked #4 in the Agriculture industry.
Stocks to Avoid:
Sociedad Química y Minera de Chile S.A. (SQM)
Based in Chile, SQM produces and distributes specialty plant nutrients, iodine and its derivatives, lithium, potassium chloride, sulfate, and certain industrial chemicals worldwide. The company offers specialty fertilizers for vegetables, fruits, and industrial crops.
SQM decided to issue l $700 million of senior unsecured notes on September 13, 2021. The company expects to use the net proceeds to finance or refinance recently completed, ongoing, or future Eligible Green Projects.
SQM’s weak prospects are reflected in its POWR Ratings. The stock has a D grade for Value. It is ranked #70 of 93 stocks in the B-rated Chemicals industry. To see additional POWR Ratings for SQM’s Growth, Stability, Quality, Momentum, and Sentiment, click here.
The Scotts Miracle-Gro Company (SMG)
SMG in Marysville, Ohio, manufactures, markets, and sells branded consumer lawn and garden care products worldwide. The company operates through three segments—U.S. Consumer; Hawthorne; and Other. In addition, it offers hydroponic products and lighting components that help grow plants and vegetables indoors, using little or no soil. It serves home and garden centers, nurseries, large hardware chains, e-commerce platforms, and food and drug stores.
On August 16, 2021, SMG acquired Rhizoflora’s leading nutrients business, including its Terpinator and Purpinator brands, further bolstering SMG’s The Hawthorne Gardening Company product portfolio. This acquisition will extend the Hawthorne Signature Nutrients portfolio into supplements that are being rapidly adopted as the industry standard to express plant characteristics fully.
SMG’s EPS is expected to remain negative in the coming quarters of the current year. Analysts expect the stock’s revenue to decline 22.6% year-over-year to $689.22 million.
SMG’s POWR Ratings are consistent with this bleak outlook. The stock has an F grade for Growth, and a D grade for Sentiment. Moreover, it is ranked #52 of 64 stocks in the B-rated Home Improvement & Goods industry.
In addition to the POWR Rating grades I’ve highlighted, one can see SMG’s ratings for Value, Momentum, Quality, and Stability here.
NTR shares were trading at $71.62 per share on Friday afternoon, down $0.12 (-0.17%). Year-to-date, NTR has gained 50.59%, versus a 20.48% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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