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Nutrien: Set to Continue Outperforming

Over the past trading year, Canadian agricultural stock Nutrien (NYSE: NTR) has outperformed most of the market. Shares of Nutrien are up 52.3% year-to-date, beating the S&P 500 (up 27.7%), and proving themselves among the Canada top stocks index.

Nutrien, based in Saskatchewan, Canada, is a supplier of fertilizers and crop protection products through approximately 2,000 stores in the Americas and Australia.

This stock is poised to continue to outperform the market. The greenhouse effect of climate change will affect the quantity and quality of crops worldwide. This will increase the need for nutrients and other agricultural products to ensure adequate supplies and according to market standards.

Increasingly frequent exceptional weather events will also create favorable conditions for the outbreak of plant diseases due to the invasion of harmful insects, and the spread of fungi and other parasites.

Nutrien also awards a forward dividend of $1.76, yielding 2.1% at the time of writing, which isn’t particularly high, but also not bad compared to some of the highest-dividend stocks.

Thus, I am bullish on Nutrien stock.

Q3 Results

Driven by effective corporate actions to optimize capitalization on strong market fundamentals, Nutrien delivered strong growth in profit lines and sales in the third quarter of 2021, compared to the corresponding period of the previous year.

Year-over-year adjusted EBITDA rose 145% to $1.64 billion, while adjusted earnings increased six-fold to $1.38 per share. Total revenue grew 43% to $6.02 billion.

On average, Nutrien beat the analysts on adjusted earnings per share by $0.15, and on total revenue by $530 million.

Free cash flow also improved significantly, as it reached $862 million in the third quarter of 2021, compared to $280 million in the third quarter of 2020.

Higher Fertilizer and Crop Protection Products Prices

Over the next few years, farmers will increasingly use products specifically designed to increase production yields and protect crops.

So, the prices of fertilizers and crop protection products will rise, but farmers will be able to write them off as a result of the expected increase in crop prices due to tighter supply versus demand.

On the supply side, abnormal weather conditions, which pose a risk to crop yields, are a concern in America’s Breadbasket, the U.S. Midwestern region where most of the wheat used domestically comes from.

South American crop production is also affected by anomalous meteorological events, with Argentina’s central farms are experiencing abnormally high temperatures even during the hottest period of the year, namely between December and February.

Regarding the demand for crops, globally this will be driven by the expected rise in the Chinese imports of U.S. soybeans and of South American corn, boosted by the following short-term factors:

• Hurricane Ida, which particularly hit the eastern U.S. in late summer 2021 and caused severe interruptions in exports of several crops, has led to a strong pent-up Chinese demand for U.S. soybeans.

• Due to a spike in wheat prices in the domestic market, Chinese livestock farmers are thinking about replacing expensive wheat with cheaper corn to feed their animals.

Looking Ahead to Full Fiscal 2021

Nutrien forecasts adjusted EBITDA to be between $6.9 billion and $7.1 billion, while adjusted net EPS will be between $5.85 and $6.10. The average consensus estimate is $5.95 for the company’s net EPS.

Wall Street’s Take

In the past three months, 13 Wall Street analysts have issued a 12-month price target for NTR. The company has a Strong Buy consensus rating, based on 10 Buys, three Holds and zero Sells.

The average Nutrien price target is $78.81, implying 4.6% upside potential.

Summary

The company aims to significantly reduce its total debt ($12.6 billion as of September 30) in the next six months.

It is highly likely that Nutrien will succeed, given the positive outlook for fertilizers and crop protection products. This could give the stock price another reason why it should outperform.

Disclosure: At the time of publication, Alberto Abaterusso did not have a position in any of the securities mentioned in this article.

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