When we think of great investments, we often have stereotypical visions of a multi-national financial institution, an energy company, or even an established technology company that is about to change the world. In doing that, we often completely neglect other areas of the economy, such as consumer staple investments or companies tied to the agricultural sector.
Saskatoon-based Nutrien produces potash, nitrogen, and phosphates for crops. The company was formed from when Potash Corp. of Saskatchewan and Agrium Inc. came together in a mega-merger that was touted to bring in cost synergies and incredible growth prospects. In some ways, the deal was the best of both worlds: Agrium had a thriving retail business, whereas Potash was a wholesaler first and foremost.
So, what makes the combined company a great buy at this juncture?
Nutrien is a seasonal stock that is now in season
Nutrien’s primary customers are farmers, and the harvesting season is fast approaching. This is significant because as crops are harvested, farmers are paid, and they begin to make preparations for the following season, which means buying more fertilizer.
That seasonal bump is something that investors can look forward to in the upcoming quarter, and with the stock retreating a bit over the past month, the window to buy Nutrien on the dip is about to close.
The merger was huge, and so are the realized synergies
One of the driving forces behind the merger of both Potash Corp. and Agrium was the potential cost synergies that the new company could realize. As of the most recent quarterly update that was reflective of up to June 30 this year, Nutrien has realized run-rate synergies of $246 million, with an expected target of $350 million now expected to be realized by the end of the current year, up from the previous estimate of $250 million.
Those synergies come as crop prices are under increasing price pressure as a result of growing trade spats around the world. So far, trade differences have not directly impacted Nutrien’s quarterly earnings, which, as of the most recent quarter, showed significant strength and potential.
Nutrien released strong results and increased guidance
In the most recent quarter, Nutrien reported sales of US$8,145 million, reflecting an impressive US$797 million increase over the same quarter last year. Net earnings for the quarter came in at US$741 million, beating the US$705 million posted in the same quarter last year. Perhaps most impressive, however, is that Nutrien managed to increase margins by US$340 million in the quarter over last year, which came in at US$2,131 million.
The positive results had a hand in Nutrien announcing updated adjusted annual earnings guidance per share for 2018 to fall in the range of US$2.40-2.70 per share, up from the previous guidance of US$2.20-2.60. This is the second guidance uptick that Nutrien announced this year, and the company noted that the strong demand and sales realized in the most recent quarter are likely to continue throughout the rest of the fiscal quarter.
In addition to the strong growth realized in the most recent quarter, Nutrien also provides investors a quarterly dividend with a solid 2.93% yield, which makes Nutrien an intriguing option for income-seeking investors.
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Fool contributor Demetris Afxentiou has no position in any stocks mentioned. Nutrien is a recommendation of Stock Advisor Canada.