Cratering prices for corn futures (ZCK24) have been a key storyline in the grain market this year, with the key ethanol ingredient down 10% YTD on the heels of its steep decline in 2023, as well. In response, analysts at Piper Sandler just downgraded a handful of agricultural chemicals stocks to “Underweight,” citing the potential for a bumper U.S. crop to drive down fertilizer prices.
Specifically, in a Feb. 29 note, Piper Sandler analyst Charles Neivert said, “Based on the data we have gathered, both anecdotal and absolute, there is a high probability that the 2024/2025 corn crop in the U.S. could become the largest in history and result in a sizable increase in corn ending stocks.”
Here's a closer look at three agricultural chemical stocks the brokerage firm thinks investors should avoid, and how Piper's forecast stacks up to the rest of Wall Street.
Agricultural Chemical Stock #1: Nutrien Ltd
Headquartered in Saskatoon, Canada, Nutrien Ltd (NTR) is a world-leading producer and distributor of fertilizer products, including phosphate, nitrogen, and potash. Serving a variety of agricultural, industrial, and feed customers worldwide, Nutrien also operates the world’s largest global ag retailer network.
NTR stock is down 5.4% so far this year. However, the stock has bounced about 11% from last month's 52-week low of $47.90.
Nutrien released its fiscal Q4 results towards the tail end of February, where it reported quarterly sales of $5.6 billion, down 25% YoY. The company's 4Q EPS came in at $0.35, down from $2.15 in the year-ago quarter - and well short of analysts' expectations. Lower net realized selling prices across all business segments and lower earnings from the Retail unit adversely impacted NTR’s financial performance, and lower prices are likely to continue to weigh on the company’s margins in the near term.
Most analysts expect NTR to rise from here, with the mean price target of $67.84 reflecting an upside potential of 27.3% from current levels. Out of the 20 analysts covering the stock, the consensus rating is a “Moderate Buy,” with 12 giving the stock a “Strong Buy,” 1 more handing out a “Moderate Buy” rating, 5 with a “Hold” rating, and 2 “Strong Sells.”
Along with its recent downgrade to “Underweight,” meanwhile, Piper Sandler lowered its NTR price target from $68 to $54 - nearly flat with the stock's current price.
Agricultural Chemical Stock #2: CF Industries Holdings
CF Industries Holdings (CF) is one of the largest producers and supplier of nitrogenous fertilizer, and other hydrogen and nitrogen products. The company’s principal nitrogenous fertilizer products are granular urea, ammonia, ammonium nitrate (AN), and urea ammonium. It is headquartered in Deerfield, Illinois.
CF stock is almost unchanged over the last 52 weeks, up just 0.2% for this time frame, but has gained 9% in the past month.
CF Holdings posted its fiscal Q4 results in mid-February, and fell short of bottom-line estimates - even as revenue edged past consensus forecasts. CF reported net sales of $1.57 billion, reflecting an almost 40% decline YoY, but still surpassing the $1.49 billion expected.
On the other hand, the earnings per share of $1.44 was much lower than the $4.35 in the same quarter last year. On an adjusted basis, EPS of $1.49 widely missed the consensus forecast.
Analysts remain generally bullish on CF Holdings, with a consensus “Moderate Buy” rating and a mean price target of $88.44 - signifying a 6.1% upside potential from current levels. Out of the 15 analysts covering the stock, 5 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, and 8 have a “Hold” rating on the stock, with only 1 dissenting ”Strong Sell" opinion.
Piper Sandler's price target on CF now stands at $82, down from $87, which indicates an expected downside of about 1.5% from here.
Agricultural Chemical Stock #3: Mosaic Company
Headquartered in Tampa, Mosaic Company (MOS) is the biggest integrated producer of phosphate and potash fertilizer in the U.S. It also mines for potash in North America, mainly in the Saskatchewan region.
Mosaic Company shares have shed 40.7% over the last year, but have regained about 10% from their mid-February 52-week low.
The phosphate giant released its most recent earnings on Feb. 21, with mixed results similar to CF's - a bottom-line miss, accompanied by a top-line beat.
Mosaic recorded EPS of $1.11 per share, down from $1.52 in 4Q 2022, while revenue declined 29.7% YoY to $3.15 billion. Adjusted EPS of $0.71 came in lighter than expected, though Wall Street was targeting revenue of just $3.01 billion.
Analysts maintain a consensus “Moderate Buy” rating on MOS stock, with a mean price target of $39.12 - signifying a 22% upside potential from current levels. Of the 15 analysts tracking the stock, 6 have a “Strong Buy” rating and 8 have a “Hold” rating on the stock, with just 1 “Strong Sell.”
Piper Sandler appears to think MOS is fully valued right now, as the brokerage firm dropped its MOS price target to $32 from $42.
