Citi Initiates Coverage on Agrium (AGU) with a Sell
AGU Hot Sheet
Rating Summary:12 Buy, 7 Hold, 1 Sell
Rating Trend:
Down
Today's Overall Ratings:
Up: 16 | Down: 7 | New: 23
Citi initiates coverage on Agrium Inc (NYSE: AGU) with a Sell/High risk rating and a $27 price target.
Citi analyst says, "Our cautious stance is driven by the prospect of deteriorating profitability in the Retail business in an environment of falling fertilizer prices. There is potential for Retail gross margins to shrink and we have factored in a 310bp Y/Y decline in segment gross margins for the first half of 2009 (from 27% to 24%). Additionally, we remain concerned by a weaker outlook in the nitrogen fertilizer business, which is ~20% of AGU’s '08E EBITDA. As we have noted in the Potash Corporation report, there is likelihood of potash prices declining after the spring selling season if the producers in former Soviet Union or Europe veer off the “disciplined path” currently taken by the North American producers. There is also some risk that there could be further inventory write-down charges at the Retail level in nitrogen and phosphate as those fertilizer prices have materially declined from peak levels. The potash inventories seem fine to us as AGU's retail stores had bought potash early and potash prices have held up, so far."
Agrium Inc. (Agrium) is a global producer and marketer of agricultural nutrients, industrial products and specialty products, and a retail supplier of agriculture products and services in North and South America.
Citi analyst says, "Our cautious stance is driven by the prospect of deteriorating profitability in the Retail business in an environment of falling fertilizer prices. There is potential for Retail gross margins to shrink and we have factored in a 310bp Y/Y decline in segment gross margins for the first half of 2009 (from 27% to 24%). Additionally, we remain concerned by a weaker outlook in the nitrogen fertilizer business, which is ~20% of AGU’s '08E EBITDA. As we have noted in the Potash Corporation report, there is likelihood of potash prices declining after the spring selling season if the producers in former Soviet Union or Europe veer off the “disciplined path” currently taken by the North American producers. There is also some risk that there could be further inventory write-down charges at the Retail level in nitrogen and phosphate as those fertilizer prices have materially declined from peak levels. The potash inventories seem fine to us as AGU's retail stores had bought potash early and potash prices have held up, so far."
Agrium Inc. (Agrium) is a global producer and marketer of agricultural nutrients, industrial products and specialty products, and a retail supplier of agriculture products and services in North and South America.
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