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The Zacks Fertilizers industry is enjoying a solid run, thanks to strong global demand and surging prices of crop nutrients. The underlying strength of the agricultural market, a rally in crop commodity prices and attractive farm economics are driving demand for fertilizers globally. A tight global supply-demand balance is also driving fertilizer prices and profit margins of players in this space.
Industry players like Nutrien Ltd., Sociedad Quimica y Minera de Chile S.A., CF Industries Holdings, Inc. and Intrepid Potash, Inc. are poised to gain from higher demand for fertilizers in the major markets. Factors like healthy farm income and expectations of healthy planted acres are expected to drive demand globally in the near term.
About the Industry
The Zacks Fertilizers industry comprises producers, distributors and marketers of crop nutrients for the global agriculture industry. Companies in this space offer nutrients such as phosphates (including diammonium phosphate, monoammonium phosphate and phosphoric acid), potash and nitrogen (including urea, ammonia and urea ammonium nitrate) fertilizers. They also provide other nitrogen products to help farmers maximize crop yield. Crop nutrients are essential to drive agricultural productivity and boost the natural fertility of the soil. Demand for these nutrients is being supported by the need to increase the production of grains to address rising food consumption globally. Moreover, the constant need of growers to nourish their crops, replenish nutrients in the soil following a harvest and boost yields to feed a growing global population drives the consumption of fertilizers.
What's Shaping the Future of the Fertilizers Industry?
Solid Demand and Pricing for Crop Nutrients: The companies in the fertilizers space are well placed to benefit from strong global demand and prices of major crop nutrients. In the United States, healthy farm profits and high levels of planted acreage are expected to drive demand for fertilizers. Strong farmer economics are also expected to support demand in major markets such as Brazil and India. Phosphate markets are likely to remain robust in the near term on solid demand and pricing dynamics. Tight availability along with firm demand is driving up phosphate prices globally. Potash prices have also strengthened on the back of robust global demand, aided by strong grower economics, higher crop prices and low global inventory levels. Demand for nitrogen fertilizer also remains healthy in major markets. Global nitrogen requirement is being driven by demand in North America, India and Brazil. Healthy corn acres in the United States are expected to spur nitrogen demand in North America. Moreover, demand for urea imports into Brazil and India remains favorable. Higher demand and lower supply availability resulting from reduced operating rates across Europe and Asia due to higher energy prices has also fueled increases in nitrogen prices. A spike in natural gas prices in Europe has triggered nitrogen fertilizer production curtailments, driving global nitrogen prices.
Favorable Agricultural Fundamentals: While the coronavirus pandemic stung a vast spectrum of industries, agriculture was left unscathed, given the sustained rise in food demand globally. Moreover, strong global demand coupled with supply constraints has boosted crop commodity prices. Higher freight, energy and labor costs and raw material shortages have contributed to the upside. Prices of corn and soybean have rallied to multi-year highs. Higher agricultural commodity prices augur well for crop nutrient demand over the near term. Expectations of high levels of planted corn and soybean acres globally on the back of higher crop prices also suggest a pickup in fertilizer demand.
Attractive Farm Economics: Farmer economics remain attractive in most global growing regions on strong crop demand. Farm economics remain healthy in the United States, aided by a spike in crop commodity prices. Rallying grain and oilseed prices due to the disruptions to supply chains caused by Russia's invasion of Ukraine are likely to lend support to U.S. farm income this year. The U.S. Department of Agriculture (“USDA”) expects net farm income to be $113.7 billion in 2022, down 4.5% year over year. However, net farm income, if realized, would be higher than their 2001-20 average, per USDA. Healthy farm income backed by higher agricultural commodity prices will likely drive farmers’ spending on crop nutrients.
Zacks Industry Rank Reflects Upbeat Prospects
The Zacks Fertilizers industry is part of the broader Zacks Basic Materials sector. It carries a Zacks Industry Rank #34, which places it in the top 14% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Tops Sector & S&P 500
The Zacks Fertilizers industry has outperformed both the Zacks S&P 500 composite and the broader Zacks Basic Materials sector over the past year.
The industry has rallied 57.1% over this period compared with the S&P 500’s decline of 6.6% and the broader sector’s decline of 16%.
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is a commonly used multiple for valuing fertilizer stocks, the industry is currently trading at 6.57X compared with the S&P 500’s 12.8X and the sector’s 5.46X.
In the past five years, the industry has traded as high as 21.97X and as low as 5.66X, with a median of 10.16X.
4 Fertilizer Stocks to Keep a Close Eye on
Sociedad Quimica: Chile-based Sociedad Quimica produces plant nutrients, iodine, lithium and industrial chemicals. It is benefiting from being the low-cost producer of potassium chloride, potassium sulfate and potassium nitrate. Higher demand is also supporting sales volumes in Sociedad Quimica’s specialty plant nutrition business. Rising demand is also backing the higher prices of potassium chloride. SQM is seeing a significant rise in global potassium prices driven by the shortage of potash and potassium-based fertilizers. These factors have contributed to its share price rally of 107.5% in a year’s time.
Sociedad Quimica, sporting a Zacks Rank #1 (Strong Buy), has an expected earnings growth rate of 513.7% for the current year. The Zacks Consensus Estimate for the current year for SQM has been revised 57.8% upward over the last 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Nutrien: Canada-based Nutrien is a leading provider of crop inputs and services. The company is benefiting from solid demand and higher prices for crop nutrients on strength in the global agriculture markets. NTR is also gaining from acquisitions, cost efficiency and increased adoption of its digital platform. The company also continues to expand its footprint in Brazil through acquisitions, including Tec Agro. These factors have contributed to its share price appreciation of 47.9% over a year.
Nutrien currently carries a Zacks Rank #2 (Buy). It has an expected earnings growth rate of 174.2% for the current year. It has outpaced the Zacks Consensus Estimate in three of the trailing four quarters. In this time frame, NTR has delivered an earnings surprise of 5.8%, on average.
CF Industries: Illinois-based CF Industries is a leading global manufacturer of nitrogen and hydrogen products for fertilizer, clean energy, emissions reduction and other industrial applications. It is gaining from higher nitrogen fertilizer demand in the major markets. It is seeing higher nitrogen demand in North America for industrial uses. Higher nitrogen prices aided by strong global demand and lower global supply availability are also driving the company’s top line. CF remains committed to boosting shareholders’ value by leveraging strong cash flows. These factors have resulted in a share price rally of roughly 107.7% over a year.
CF Industries, carrying a Zacks Rank #2, has an expected earnings growth rate of 334.3% for the current year. CF also has an expected long-term earnings per share growth rate of 6%.
Intrepid Potash: Colorado-based Intrepid Potash is the only producer of muriate of potash in the United States and also makes a specialty fertilizer, Trio. It is gaining from a strong commodity environment and higher fertilizer prices, which are supporting its sales and margins. A recovery in economic activities and the strength in commodity prices are driving demand for its specialty fertilizer, Trio. Higher realized sales prices for potash and Trio are driving IPI’s bottom line. Driven by these factors, the company’s shares have shot up around 46.7% over the past year.
Intrepid Potash, carrying a Zacks Rank #2, has an expected earnings growth rate of 477.9% for the current year. The Zacks Consensus Estimate for the current year for IPI has been stable over the last 60 days
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Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
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Zacks Industry Outlook Highlights Nutrien, Sociedad Quimica y Minera de Chile S.A., CF Industries Holdings and Intrepid Potash
For Immediate Release
Chicago, IL – August 2, 2022 – Today, Zacks Equity Research discusses Nutrien Ltd. (NTR - Free Report) , Sociedad Quimica y Minera de Chile S.A. (SQM - Free Report) , CF Industries Holdings, Inc. (CF - Free Report) and Intrepid Potash, Inc. (IPI - Free Report) .
Industry – Fertilizers
Link – https://www.zacks.com/commentary/1961085/4-top-fertilizer-stocks-to-ride-the-industrys-momentum
The Zacks Fertilizers industry is enjoying a solid run, thanks to strong global demand and surging prices of crop nutrients. The underlying strength of the agricultural market, a rally in crop commodity prices and attractive farm economics are driving demand for fertilizers globally. A tight global supply-demand balance is also driving fertilizer prices and profit margins of players in this space.
Industry players like Nutrien Ltd., Sociedad Quimica y Minera de Chile S.A., CF Industries Holdings, Inc. and Intrepid Potash, Inc. are poised to gain from higher demand for fertilizers in the major markets. Factors like healthy farm income and expectations of healthy planted acres are expected to drive demand globally in the near term.
About the Industry
The Zacks Fertilizers industry comprises producers, distributors and marketers of crop nutrients for the global agriculture industry. Companies in this space offer nutrients such as phosphates (including diammonium phosphate, monoammonium phosphate and phosphoric acid), potash and nitrogen (including urea, ammonia and urea ammonium nitrate) fertilizers. They also provide other nitrogen products to help farmers maximize crop yield. Crop nutrients are essential to drive agricultural productivity and boost the natural fertility of the soil. Demand for these nutrients is being supported by the need to increase the production of grains to address rising food consumption globally. Moreover, the constant need of growers to nourish their crops, replenish nutrients in the soil following a harvest and boost yields to feed a growing global population drives the consumption of fertilizers.
What's Shaping the Future of the Fertilizers Industry?
Solid Demand and Pricing for Crop Nutrients: The companies in the fertilizers space are well placed to benefit from strong global demand and prices of major crop nutrients. In the United States, healthy farm profits and high levels of planted acreage are expected to drive demand for fertilizers. Strong farmer economics are also expected to support demand in major markets such as Brazil and India. Phosphate markets are likely to remain robust in the near term on solid demand and pricing dynamics. Tight availability along with firm demand is driving up phosphate prices globally. Potash prices have also strengthened on the back of robust global demand, aided by strong grower economics, higher crop prices and low global inventory levels. Demand for nitrogen fertilizer also remains healthy in major markets. Global nitrogen requirement is being driven by demand in North America, India and Brazil. Healthy corn acres in the United States are expected to spur nitrogen demand in North America. Moreover, demand for urea imports into Brazil and India remains favorable. Higher demand and lower supply availability resulting from reduced operating rates across Europe and Asia due to higher energy prices has also fueled increases in nitrogen prices. A spike in natural gas prices in Europe has triggered nitrogen fertilizer production curtailments, driving global nitrogen prices.
Favorable Agricultural Fundamentals: While the coronavirus pandemic stung a vast spectrum of industries, agriculture was left unscathed, given the sustained rise in food demand globally. Moreover, strong global demand coupled with supply constraints has boosted crop commodity prices. Higher freight, energy and labor costs and raw material shortages have contributed to the upside. Prices of corn and soybean have rallied to multi-year highs. Higher agricultural commodity prices augur well for crop nutrient demand over the near term. Expectations of high levels of planted corn and soybean acres globally on the back of higher crop prices also suggest a pickup in fertilizer demand.
Attractive Farm Economics: Farmer economics remain attractive in most global growing regions on strong crop demand. Farm economics remain healthy in the United States, aided by a spike in crop commodity prices. Rallying grain and oilseed prices due to the disruptions to supply chains caused by Russia's invasion of Ukraine are likely to lend support to U.S. farm income this year. The U.S. Department of Agriculture (“USDA”) expects net farm income to be $113.7 billion in 2022, down 4.5% year over year. However, net farm income, if realized, would be higher than their 2001-20 average, per USDA. Healthy farm income backed by higher agricultural commodity prices will likely drive farmers’ spending on crop nutrients.
Zacks Industry Rank Reflects Upbeat Prospects
The Zacks Fertilizers industry is part of the broader Zacks Basic Materials sector. It carries a Zacks Industry Rank #34, which places it in the top 14% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Tops Sector & S&P 500
The Zacks Fertilizers industry has outperformed both the Zacks S&P 500 composite and the broader Zacks Basic Materials sector over the past year.
The industry has rallied 57.1% over this period compared with the S&P 500’s decline of 6.6% and the broader sector’s decline of 16%.
Industry's Current Valuation
On the basis of the trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which is a commonly used multiple for valuing fertilizer stocks, the industry is currently trading at 6.57X compared with the S&P 500’s 12.8X and the sector’s 5.46X.
In the past five years, the industry has traded as high as 21.97X and as low as 5.66X, with a median of 10.16X.
4 Fertilizer Stocks to Keep a Close Eye on
Sociedad Quimica: Chile-based Sociedad Quimica produces plant nutrients, iodine, lithium and industrial chemicals. It is benefiting from being the low-cost producer of potassium chloride, potassium sulfate and potassium nitrate. Higher demand is also supporting sales volumes in Sociedad Quimica’s specialty plant nutrition business. Rising demand is also backing the higher prices of potassium chloride. SQM is seeing a significant rise in global potassium prices driven by the shortage of potash and potassium-based fertilizers. These factors have contributed to its share price rally of 107.5% in a year’s time.
Sociedad Quimica, sporting a Zacks Rank #1 (Strong Buy), has an expected earnings growth rate of 513.7% for the current year. The Zacks Consensus Estimate for the current year for SQM has been revised 57.8% upward over the last 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Nutrien: Canada-based Nutrien is a leading provider of crop inputs and services. The company is benefiting from solid demand and higher prices for crop nutrients on strength in the global agriculture markets. NTR is also gaining from acquisitions, cost efficiency and increased adoption of its digital platform. The company also continues to expand its footprint in Brazil through acquisitions, including Tec Agro. These factors have contributed to its share price appreciation of 47.9% over a year.
Nutrien currently carries a Zacks Rank #2 (Buy). It has an expected earnings growth rate of 174.2% for the current year. It has outpaced the Zacks Consensus Estimate in three of the trailing four quarters. In this time frame, NTR has delivered an earnings surprise of 5.8%, on average.
CF Industries: Illinois-based CF Industries is a leading global manufacturer of nitrogen and hydrogen products for fertilizer, clean energy, emissions reduction and other industrial applications. It is gaining from higher nitrogen fertilizer demand in the major markets. It is seeing higher nitrogen demand in North America for industrial uses. Higher nitrogen prices aided by strong global demand and lower global supply availability are also driving the company’s top line. CF remains committed to boosting shareholders’ value by leveraging strong cash flows. These factors have resulted in a share price rally of roughly 107.7% over a year.
CF Industries, carrying a Zacks Rank #2, has an expected earnings growth rate of 334.3% for the current year. CF also has an expected long-term earnings per share growth rate of 6%.
Intrepid Potash: Colorado-based Intrepid Potash is the only producer of muriate of potash in the United States and also makes a specialty fertilizer, Trio. It is gaining from a strong commodity environment and higher fertilizer prices, which are supporting its sales and margins. A recovery in economic activities and the strength in commodity prices are driving demand for its specialty fertilizer, Trio. Higher realized sales prices for potash and Trio are driving IPI’s bottom line. Driven by these factors, the company’s shares have shot up around 46.7% over the past year.
Intrepid Potash, carrying a Zacks Rank #2, has an expected earnings growth rate of 477.9% for the current year. The Zacks Consensus Estimate for the current year for IPI has been stable over the last 60 days
Why Haven’t You Looked at Zacks' Top Stocks?
Our 5 best-performing strategies have blown away the S&P's impressive +28.8% gain in 2021. Amazingly, they soared +40.3%, +48.2%, +67.6%, +94.4%, and +95.3%. Today you can access their live picks without cost or obligation.
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Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.