We believe Nutrien shares are undervalued compared to our fair value estimate of USD 70 (CAD 96). Since reaching an all-time high in 2022, the stock has experienced a decline and now trades at a significant discount to our valuation. For income-focused investors, Nutrien currently offers a 3.7% dividend yield. We attribute the market's reaction to tariff-related uncertainties that may impact profits. However, we anticipate that US farmers will continue to invest in essential crop inputs, such as seeds, crop chemicals, and fertilizers. We expect an increase in potash and nitrogen prices, along with reduced overhead costs in the retail segment, to drive profit growth in 2025.
Nutrien's competitive advantage stems from its cost-effective potash and nitrogen production. As the largest potash producer globally by capacity, potash represents the firm's most significant profit source. Its Canadian mines benefit from favorable geological conditions, resulting in lower mining and processing costs compared to competitors. We project that potash prices will rise in 2025.
Following the onset of the Russia-Ukraine conflict in 2022, potash prices surged to record highs due to restricted exports from Russia and Belarus, which together account for 40% of global potash exports. In response to these high prices, potash demand declined significantly. However, the supply shock was temporary, as Russia and Belarus quickly restored exports through a global trade shift. Supply rebounded faster than demand, causing prices to drop to cyclically low levels. We expect demand to fully recover in 2024, with further growth anticipated in 2025. Additionally, both Belarus and Russia plan to reduce potash production this year to support higher prices. Even if the US, EU, and Russia reach an agreement allowing Russia to sell potash to these regions, we foresee minimal impact on potash supply and demand dynamics, which should favor Nutrien.
Lastly, we anticipate a recovery in retail profits. As the largest farm retailer in the US, Nutrien is adapting to the trend of farmers utilizing online farm management tools by reducing its US store count, which will lower overhead expenses. This strategy is expected to enhance profits in 2025.
市场分析
