Doubling down on an investment thesis laid out in August, Jana chief executive Barry Rosenstein said on Oct. 1 he will continue to push for a wholesale and retail unit split, noting that a shale drilling boom has significantly lowered the input costs for Agrium's nitrogen and fertilizer businesses on the wholesale side of the operations.
The hedge fund investor said Agrium's retail business could be worth $15 to $20 a share independently and that, in total, Agrium may be undervalued by $50 a share as a result of its conglomerate structure.
Still, while Jukevar of Citigroup is shooting off an early fourth quarter warning on the earnings of key gas users, the analyst isn't ready to call the end to the benefits of low gas prices or a shale drilling boom on top agricultural and chemical producers.
"Taking a step back, nitrogen producers are in a far better position today despite this very recent rally in natural gas thanks to the "shale supremacy"... If higher gas costs are sustained, there could be some modest margin pressure starting in 4Q, but this does not alter our positive view on nitrogen ahead of another ~95mm acre corn planting in the US in 2013," writes Juvekar.In spite of the fourth quarter EPS revision, Citigroup remains a buyer of Dow Chemicals and LyondellBasell, and highlights Agrium as a top pick in the agricultural sector as a result of the farm-related income the company earns from its retail business. Citigroup's Monday analysis on the impact of a sudden rise in natural gas dents the expected impact of a shale boom as an earnings tailwind, but it isn't enough yet to cut against the thesis of hedge funds like Jana Partners or the optimism that investors have on the industrials sector, generally. Nevertheless, investors should continue to watch natural gas prices as a read-through on industrial earnings and not just on the share prices of oil and gas producers like Chesapeake Energy (CHK), who need rising prices to help fill waning finances. For more on the impact of low natural gas prices on stocks, see why Jana Partners Agrium breakup pitch is a shale boom bet and why the drilling industry's cash hole goes much deeper than Chesapeake Energy. -- Written by Antoine Gara in New York
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV