NEW YORK (TheStreet) -- Shares of Potash Corp. of Saskatchewan (POT) are lower by 2.56% to $18.45 in midday trading on Monday, after Bank of America/Merrill Lynch reinstated coverage on the fertilizer company with an "underperform" rating.
Bank of America/Merrill Lynch analyst Steve Byrne set a $20 price target on Potash stock.
The rating is due to expectations the increased capex in the potash industry over the last 10 years will depress operating rates over the next few years, The Fly reports.
The firm is seeing the possibility of a breakdown in the potash price discipline as new capacity fights for market share.
Potash currently has an attractive dividend yield of 7.5%, according to Bank of America/Merrill Lynch, The Fly noted.
Potash is a Saskatoon, Canada-based agricultural and chemical company that operates in three segments, potash, nitrogen and phosphate.
Separately, TheStreet Ratings team rates POTASH CORP SASK INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
We rate POTASH CORP SASK INC (POT) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, notable return on equity and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, weak operating cash flow and a generally disappointing performance in the stock itself.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The current debt-to-equity ratio, 0.48, is low and is below the industry average, implying that there has been successful management of debt levels. Despite the fact that POT's debt-to-equity ratio is low, the quick ratio, which is currently 0.60, displays a potential problem in covering short-term cash needs.
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Chemicals industry and the overall market on the basis of return on equity, POTASH CORP SASK INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
- 39.11% is the gross profit margin for POTASH CORP SASK INC which we consider to be strong. Regardless of POT's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, POT's net profit margin of 18.44% compares favorably to the industry average.
- POTASH CORP SASK INC's earnings per share declined by 10.5% in the most recent quarter compared to the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, POTASH CORP SASK INC reported lower earnings of $1.83 versus $2.03 in the prior year. For the next year, the market is expecting a contraction of 12.8% in earnings ($1.60 versus $1.83).
- Net operating cash flow has decreased to $358.00 million or 37.63% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- You can view the full analysis from the report here: POT
Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.