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3 Top Fertilizer Stocks to Watch From a Promising Industry

The Zacks Fertilizers industry is expected to benefit from favorable demand fundamentals for major crop nutrients, including phosphate and potash. The underlying strength of the agricultural market and attractive farm economics are spurring demand for fertilizers globally.

Industry players such as Nutrien Ltd. NTR, ICL Group Ltd ICL and Intrepid Potash, Inc. IPI are poised to gain from higher demand for fertilizers in the major markets. While weak fertilizer prices pose headwinds, factors like healthy farm income and expectations of increased planted acres are expected to drive crop nutrient 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 in driving agricultural productivity and boosting 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. 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?

Healthy Demand for Crop Nutrients: The companies in the fertilizers space are well-placed to benefit from healthy global demand for 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. The phosphate market is benefiting from higher global demand and low producer and channel inventories. Strong grower economics, improved affordability and low inventory levels are also expected to drive potash demand globally. Demand for nitrogen fertilizer also remains healthy in major markets, backed by significant agricultural demand and recovering industrial demand. High levels of corn planted acres and low nitrogen channel inventories should drive demand for nitrogen in North America. Moreover, demand for urea imports remains strong in Brazil and India.

Agricultural Fundamentals Remain Favorable: While the coronavirus pandemic stung a vast spectrum of industries, agriculture was relatively unscathed, given the sustained rise in food demand globally. Moreover, strong global demand coupled with supply worries stemming from Russia’s invasion of Ukraine boosted crop commodity prices. Higher freight, energy and labor costs and raw material shortages contributed to the upside. While prices of corn, soybean and wheat have declined from the multi-year highs reached in 2022, they remain elevated and supportive. Farmer economics also remain attractive in most global growing regions on strong crop demand. Expectations of high levels of planted corn and soybean acres globally also suggest a pickup in fertilizer demand.

Weaker Fertilizer Prices a Concern: Fertilizer prices surged to historic high levels in the first half of 2022, riding on the impacts of the war in Ukraine that led grain prices to record high levels and export curtailments in China to meet domestic demand. Disruptions due to the sanctions in Belarus also contributed to the spike. However, prices of phosphate and potash declined in the back half of the year from their peak levels due to the weakening of demand. Escalating costs led to growers reducing fertilizer applications or switching to less fertilizer-intensive crops, leading to softer demand. Global nitrogen prices have declined since the beginning of 2023. Higher global supply driven by increased global operating rates due to lower global energy costs has resulted in a decline in prices. While fertilizer prices have stabilized somewhat, weaker year-over-year prices are likely to dent the profitability of companies in this space over the near term.

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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 #92, which places it in the top 37% 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 a bright near term. 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 Underperforms Sector & S&P 500

The Zacks Fertilizers industry has underperformed both the Zacks S&P 500 composite and the broader Zacks Basic Materials sector over the past year.

The industry has lost 13% over this period against the S&P 500’s rise of 23.2% and the broader sector’s increase of 6.3%.

 

One-Year Price Performance



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 10.07X compared with the S&P 500’s 14.77X and the sector’s 11.71X.

In the past five years, the industry has traded as high as 21.85X and as low as 4.95X, with a median of 11.76X, as the chart below shows.

 

Enterprise Value/EBITDA (EV/EBITDA) Ratio

 

 

Enterprise Value/EBITDA (EV/EBITDA) Ratio

 



3 Fertilizer Stocks to Keep a Close Eye on

Intrepid Potash: Colorado-based Intrepid Potash is the only producer of muriate of potash in the United States and makes a specialty fertilizer, Trio. It is gaining from a healthy demand environment aided by healthy farmer economics and favorable crop prices. A recovery in economic activities is driving demand for Trio. Higher demand for key products is expected to drive IPI’s volumes. The company also remains focused on executing its capital projects, which are expected to drive its production.

Intrepid Potash currently carries a Zacks Rank #2 (Buy). IPI has a projected earnings growth rate of 160% for 2024. The Zacks Consensus Estimate for 2024 earnings for IPI has been revised 146.7% upward over the past 30 days. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

Price and Consensus: IPI

 

 

Nutrien: Canada-based Nutrien is a leading provider of crop inputs and services. The company is benefiting from higher demand for crop nutrients on strength in the global agriculture markets. It is seeing strong demand in its major markets, particularly North America. 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. NTR completed a number of acquisitions in 2023 and expects to continue pursuing targeted opportunities in its core markets this year. Lower natural gas costs are also contributing to a decline in its cost of goods sold.


Nutrien currently carries a Zacks Rank #3 (Hold).  The Zacks Consensus Estimate for 2024 earnings for NTR has been revised 1.5% upward over the past 30 days. It also has an expected long-term earnings per share growth rate of 8%.

Price and Consensus: NTR

 

 

ICL Group: Israel-based ICL is engaged in the fertilizer and specialty chemical sectors. The company remains focused on exapnding its specialties businesses. Efforts to boost operating efficiency and productivity and the launch of new innovative solutions should support its results. The acquisition of Nitro 1000 also allows ICL to expand its market position and leadership in Brazil's specialty plant nutrition.

ICL Group currently carries a Zacks Rank #3. ICL’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 13.5%, on average. The consensus estimate for 2024 earnings for ICL has been stable over the past 30 days.

 

Price and Consensus: ICL




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Intrepid Potash, Inc (IPI) : Free Stock Analysis Report

ICL Group Ltd. (ICL) : Free Stock Analysis Report

Nutrien Ltd. (NTR) : Free Stock Analysis Report

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