Nutrien Earnings: Shares Dive on Falling Fertilizer Prices and Profits

We reduce our Nutrien NTR fair value estimate to $70 (CAD 94) per share from $80 (CAD 107) after updating our model to incorporate the company’s first-quarter results as well as our outlook for lower near-term fertilizer prices. Our narrow moat rating is unchanged. Nutrien shares were down 6% at the time of writing on management’s guidance cuts as falling fertilizer prices caused management to cut adjusted EPS guidance over 30% at the midpoint. At current prices, we view Nutrien as slightly undervalued with shares trading around 15% below our updated fair value estimate.

In potash, Canpotex (Mosaic and Nutrien’s export marketing joint venture) signed a six-month contract with India at a price of $422 per metric ton, well below 2022′s price of $590. This was slightly below our prior 2023 outlook for a price in the mid-$400 range but aligns with our general outlook that fertilizer prices would see cyclically high levels in 2022 but the high prices would be short-lived. As Russia and Belarus continue to ramp up exports following the sharp decline last year after the start of the Russia-Ukraine war, we expect prices will continue to moderate over the long term, eventually falling to our midcycle forecast of $310 per metric ton in 2023 real terms.

We also lowered our 2023 nitrogen urea forecast to account for prices falling faster than we had previously forecast. We now forecast average urea prices (on a free on board Middle East basis) will average $375 per metric ton in 2023, down from our prior forecast of $450 and well below the 2022 average price of $700. However, the lower prices should lead to more normal demand as nitrogen becomes more affordable for farmers. This should support nitrogen prices in 2023, even though spot prices fell to the low-$300 per metric ton range earlier in the year. For Nutrien, lower nitrogen prices should be partially offset by lower North American natural gas prices, which is the input for roughly 25% of nitrogen production.