Valued at $34.3 billion by market cap, Nutrien (TSX: NTR) provides crop inputs and services. It operates through four business segments:
- Retail: It distributes crop nutrients, crop protection products, seeds, and merchandise products.
- Potash: It provides granular and standard potash products.
- Nitrogen: It offers ammonia, urea, nitrogen solutions, nitrates, and sulfates.
- Phosphate: It provides solid fertilizer, liquid fertilizer, and industrial and feed products.
The company provides services directly to growers through a network of farm centers in the Americas and Australia. Nutrien went public in early 2018 and has since returned 26% to shareholders after adjusting for dividend reinvestments. Comparatively, the TSX index has returned over 70% to shareholders since Nutrien’s initial public offering.
Down 52% from all-time highs, Nutrien offers shareholders a forward dividend yield of over 4%, given its annual payout of $2.96 per share. Let’s see if Nutrien stock is a good buy right now.
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Is Nutrien stock a good buy right now?
Nutrien operates an extensive crop inputs and services ecosystem with low-cost upstream production assets, a global supply chain, and a downstream retail channel. Its differentiated business model is centred on the company’s ability to efficiently produce and distribute the products and services required across key agriculture markets around the globe.
Nutrien has focused on prioritizing initiatives that enhance its ability to serve farmers in core markets while improving earnings and cash flow.
For example, Nutrien has prioritized investments to enhance its North American fertilizer production assets and product capabilities to strengthen its global distribution network and grow in core downstream retail markets.
Further, Nutrien is accelerating operational efficiency objectives through the deployment of automation and other initiatives in potash. It is also optimizing the downstream retail network through modernization and consolidation initiatives in North America and a targeted margin improvement plan in Brazil.
A focus on scalable growth
Nutrien is targeting potash and nitrogen sales volume growth of between two to three million tonnes by 2026 compared to 2023. It also expects retail adjusted EBITDA (earnings between interest, tax, depreciation, and amortization) between $1.9 billion and $2.1 billion in 2026, which includes a goal of $1.4 billion in gross margin from its proprietary products portfolio. Basically, Nutrien aims to utilize competitive advantages to deliver scalable growth.
Amid a challenging macro backdrop, Nutrien intends to reduce controllable costs across its operations by $200 million by 2026 and invest between $2.2 billion and $2.3 billion towards capital expenditures through 2026.
What is the target price for Nutrien stock?
Nutrien is part of the agriculture sector, which is fairly recession-proof. However, it also trades in commodities, making it highly cyclical. The stock gained significant pace amid an inflationary environment, rising over 100% between late 2020 and April 2021.
As commodity prices cool off, analysts expect Nutrien to report adjusted earnings per share of $5.33 below earnings of $6.07 per share in 2023.
Priced at 13 times forward earnings, Nutrien stock is quite cheap, given its high dividend yield. Analysts, too, remain bullish and expect the stock to surge 30% in the next 12 months.
