$59.20
-0.91 (-1.51%)
Agrium, Inc. (USA) (AGU)
CAPS Rating:
The Company is a retailer of agricultural products and services in the United States and Argentina and a global producer and wholesale marketer of nutrients for agricultural and industrial markets.
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During the summer of '08, the potash producers were priced for perfection with AGU eclipsing the $110 mark. In a few short months, we see a complete reversal and now potash companies are priced as if they will barely be profitable over the next decade. More than any other industry, I think agriculture is the place to be right now, as demand will continue to be strong even with worldwide recession. Even with AGU being up nearly 50% from its low point (when it was selling around $25 per share), this still seems like one of the better values on the market right now.
With a book value of about $26.60, AGU has a price-to-book that is still relatively low at 1.37. Earnings for FY '07 were $2.79 per share while Cash Flows from Operations were an even more impressive $3.13 per share. If you look at the past four quarters, those numbers become even more impressive with earnings of $8.67 per share and CFOs of $4.42 per share. Free cash flows have not been nearly as impressive, but if you discount acquisitions, they still came out with a healthy $1.63 per share over the past four quarters. That's not so bad when you consider the fact that they have been aggressively considering growth opportunities.
Analysts have made forward earnings estimates (FY '09) ranging from $5.81 to $9.40 per share. Even going by the low-end estimate, that gives AGU a forward P/E under 6.3. While abnormal earnings can only last so long in most industries, I believe AGU still has a good 2-3 years of healthy profits ahead of them and if anything, the financial crisis might help the current players even more as it becomes more difficult for new entrants to find capital.
My only major concern is a 59.4% debt-to-value ratio, but that shouldn't destroy them, especially if they can continue bringing in strong cash flows. I would like to see them start paying down some of that debt, though, and get that ratio closer to 50%.
I ran some quickie DCFs on this and even if I play this very, very conservatively, it still seems to be worth at least $38-40. I don't think $50 would be an unreasonable price and if earnings continue to be strong, this thing could once again bubble up. I'm going to set a target price at $45 and I might wait and see if this trends back up into the $60-70 range before ending my pick.