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3 Reasons to Buy Potash Corp./Saskatchewan Right Now

Potash Corp./Saskatchewan (TSX:POT)(NYSE:POT), the world’s largest manufacturer of fertilizer and the company responsible for one-fifth of the global capacity of potash, has underperformed the overall market in 2015, falling over 2% as the TSX Composite Index has risen over 2.5%, but I think it will be one of the top performing stocks from this point forward. Let’s take a look at three of the primary reasons why I think this could happen and why you should strongly consider initiating a position today.

1. Double-digit earnings-per-share growth to support a higher stock price

On the morning of April 30 Potash reported first-quarter earnings results, and its stock has responded by rising about 1% in the trading sessions since. Here’s a breakdown of 12 of the most notable statistics from the report compared with the year-ago period (all figures are in U.S. dollars):

  1. Net income increased 8.8% to $370 million
  2. Diluted earnings per share increased 10% to $0.44
  3. Revenue decreased 0.9% to $1.67 billion
  4. Revenue decreased 17% to $482 million in its Nitrogen segment
  5. Revenue increased 10% to $738 million in its Potash segment
  6. Revenue increased 4% to $445 million in its Phosphate segment
  7. Production of potash increased 9.1% to 2.61 million tonnes
  8. Gross profit increased 18.1% to $667 million
  9. Gross margin expanded 650 basis points to 40.1%
  10. Operating income increased 5.3% to $559 million
  11. Operating margin expanded 200 basis points to 33.6%
  12. Ended the quarter with $217 million in cash and cash equivalents, an increase of 0.9% from the beginning of the quarter

2. The stock trades at inexpensive forward valuations

At current levels Potash’s stock trades at just 22.3 times its median earnings-per-share outlook of $1.80 for fiscal 2015 and only 18.6 times analysts’ estimated earnings per share of $2.16 for fiscal 2016, both of which are inexpensive compared with its long-term growth potential.

I think Potash’s stock could consistently command a fair multiple of at least 25, which would place its shares around $45 by the conclusion of fiscal 2015 and around $54 by the conclusion of fiscal 2016, representing upside of more than 11% and 34%, respectively, from today’s levels.

3. A high dividend that has been increased consistently

Potash pays a quarterly dividend of $0.38 per share, or $1.52 per share annually, giving its stock a 3.8% yield at today’s levels. The company has also increased its dividend six times in the last four years, making it one of the top dividend-growth plays in the industry today, and its consistent free cash flow generation could allow for another increase in the near future.

Should you buy shares of Potash today?

I think Potash Corp./Saskatchewan represents one of the best long-term opportunities in the market today. It has the support of double-digit first-quarter earnings-per-share growth, its stock trades at inexpensive forward valuations, and it has a 3.8% dividend yield with a track record of increasing its payout. With all of this information in mind, I think long-term investors should strongly consider beginning to scale in to long-term positions in Potash today.

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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.

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