Nutrien Earnings: Profits Reaching Cyclical Bottom as Fertilizer Prices Stabilize

Nutrien’s NTR third-quarter results reflected lower fertilizer prices, where spot prices for potash, nitrogen, and phosphate generally bottomed out near the beginning of the quarter, before slightly rising during the quarter. We think lower fertilizer prices, which now generally sit near our long-term price forecasts, will result in farmers applying more volumes this year and in 2024. Having updated our model to incorporate Nutrien’s third-quarter results, we maintain our $70 per share fair value estimate. Our Canadian dollar-denominated fair value estimate rises to CAD 96 from CAD 93 due to currency movements since our last update. Our narrow-moat rating is unchanged.

Nutrien shares were up 2% at the time of writing as the market reacted positively to the earnings, despite a small guidance cut on lower near-term prices. Nutrien’s stock had sold off earlier in the week on the news that BHP had approved the construction of the second phase at its Jansen potash project, where the first phase is currently under construction. Combined, both phases will have an annual production capacity of 8.5 million metric tons. Management’s current timeline is for the new supply to initially enter the market in 2026, with phase 2 ramping up by 2032. Assuming no delays on the project, we think the market could handle the increased supply as we expect potash demand will grow around 2% to 3% per year as farmers around the world, particularly in Asia, increase their potash application closer to that of farmers in North and South America.

At current prices, we view Nutrien shares as undervalued, with the stock trading in 4-star territory. We think the market is concerned that Nutrien’s retail business will see lower midcycle profits amid a recent profit decline. However, we expect Nutrien’s retail business profits will stabilize as the company sells higher cost inventory and replenishes it with lower-cost products.