January 27, 2010 / 12:31 PM / in 8 years

RPT-BUY OR SELL-Potash Corp: Room to grow, or to wilt?

(Repeats Jan. 26 article without changes)

* Potash Corp to announce Q4 results Thursday

* Bulls see demand recovery pushing share price higher

* Bears see estimates revised lower, shares overvalued

By Euan Rocha

TORONTO, Jan 26 (Reuters) - Shares of the world’s largest fertilizer maker, Potash Corp of Saskatchewan POT.TO, have risen almost 15 percent over the last three months as investors eye a sharp recovery in demand this year.

The Saskatoon, Saskatchewan-based company is expected to announce its fourth-quarter and full-year results on Thursday, when it will also give its views on the demand outlook for 2010.

Most analysts and investors expect a sharp recovery in fertilizer demand this year after a slump in 2009, when the global economic slowdown and credit crunch hurt demand. Shares of Potash Corp have already risen C$14.40 over the last three months, in anticipation of this rebound.

But is there still room for Potash Corp shares to climb, or is the stock likely to tumble?

ROOM TO GROW

BMO Capital markets analyst Edwin Chee sees Potash Corp benefiting from a recovery in demand for potash -- a key crop nutrient.

“We believe that the worst is coming to an end for the potash industry and that investors should take advantage of the current weakness in the stock price to accumulate the stock,” said Chee in a note to clients.

Chee, who has an “outperform” rating on the company’s shares, said the recent declines in North American potash inventories at the producer level are a positive sign.

“This is likely to result in greater price stability in 2010 with the prospect of stronger prices emerging in 2011,” said Chee, who has a $135 price target on the company’s shares.

LIKELY TO WILT

Atlantic Equities analyst Colin Isaac argues that Potash Corp’s shares are overvalued, as analysts’ earnings expectations for 2011 are still too high.

Most analyst estimates for 2011 earnings “reflect a full normalization in volumes, plus a recovery in potash prices from current levels,” Isaac said.

He said the company’s shares historically traded at 15 times expected earnings, while they are currently trading at roughly 19 times analysts’ 2010 consensus view and 15 times the 2011 consensus view.

The shares may appear fairly valued based on the current 2011 consensus view, said Isaac, but he believes that most analysts’ 2011 earnings expectations will have to be revised lower, making shares expensive at the current price level.

Isaac, who has a $90 price target and an “underweight” rating on the company’s stock, doubts that potash prices can recover while more production capacity continues to come on stream. (Reporting by Euan Rocha; editing by Peter Galloway)

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