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Will Strong Q3 Earnings Help Get Potash Corp./Saskatchewan’s Stock Back in Positive Territory?

Potash Corp./Saskatchewan (TSX: POT)(NYSE: POT) is the world’s largest fertilizer company and it is responsible for one-fifth of the global capacity of potash, which is a key nutrient used in the production of fertilizer. Although it is a vital player in the agriculture industry, this has not led to a strong performance in the stock market in 2014, as its shares have risen just 2.8% year to date, underperforming the TSX Composite Index’s 4.5% gain. With this being said, third-quarter earnings are scheduled to be released this week and strong results could be the catalyst it needs to get on top of the market.

Let’s take a look at the current expectations and the other most important statistics to watch for to determine if we should consider initiating long-term positions today or if we should wait to see what the report holds.

Q3 expectations and what to watch for

Third-quarter earnings are scheduled to be released before the market opens on October 23 and the current expectations call for mixed growth. Here’s an overview:

Metric Expected Year Ago
Earnings Per Share $0.42 $0.41
Revenue $1.49 billion $1.52 billion

Source: Estimize.

The estimates above call for earnings per share to increase 2.4% and revenue to decrease 2% compared to the third-quarter of fiscal 2013; this earnings per share estimate is also in line with Potash’s outlook on the third quarter, which projected earnings per share in the range of $0.35-$0.45. Key metrics aside, here are three other important factors to watch for:

  1. Fourth-Quarter Outlook: It will be very important for Potash to provide outlook on the fourth quarter that meets or exceeds analysts’ expectations; currently, the consensus estimates call for earnings per share of $0.44 and revenue of $1.57 billion, which would result in year-over-year growth of 41.9% and 1.9%, respectively.
  2. Full-Year Outlook: While providing sufficient outlook on the fourth quarter, it will also be important for Potash to reaffirm its full-year outlook on fiscal 2014; this outlook, provided in its second-quarter report, calls for earnings per share in the range of $1.70-$1.90, $1.2 billion-$1.4 billion in gross profit from the sale of potash, and $1.0 billion-$1.2 billion in gross profit from the sale of nitrogen and phosphate.
  3. Potash Pricing: Lastly, watch for the updated price per tonne of potash and make sure it continues to recover. In the second quarter, the average realized potash price was $263 per tonne, an increase of $13 from the first quarter, but this was down significantly from the $356 per tonne reported in the second quarter of fiscal 2013. Recovering potash prices will play a key role in Potash’s long-term growth.

Does Potash represent a long-term opportunity today?

Potash Corp./Saskatchewan is one of the largest agricultural chemical companies in the world, but its stock has not performed accordingly in 2014; it has risen just 2.8% year to date, but it could rally much higher following the release of its third-quarter earnings results on October 23.

Long-term investors should take a closer look at Potash today because it trades at just 17 times forward earnings estimates and has a bountiful 3.9% dividend yield.

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joseph Solitro has no position in any stocks mentioned. The Motley Fool owns shares of Potash Corp.

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