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Nutrien NTR is having a good 2025 so far: The stock is up 17% following news of a production cut by major potash producer Belaruskali. We expect rising potash prices and recovering profits to act as catalysts for the shares in 2025. We think the stock looks attractive now, trading 25% below our fair value estimate. Income investors will appreciate the high dividend yield, too. Nutrien is one of Morningstar chief US market strategist Dave Sekera’s 3 Stocks to Buy Before They Report Earnings.
Nutrien is the world’s largest crop nutrient company by capacity. It is also the largest agricultural retailer in North America and Australia, with a growing presence in Brazil. The retail business sells crop inputs and services directly to farmers. In this highly fragmented industry, Nutrien is pursuing an omnichannel growth strategy by acquiring smaller retail businesses and developing its online presence. With around 20% market share, the company is the largest global potash producer by capacity. Its Canadian mines mostly sit on the lower half of the cost curve and have generated profits even when prices are at cyclically low levels below the marginal cost of production. Nutrien is also one of the largest nitrogen fertilizer producers globally, with both middle- and low-cost assets. It sits on the higher end of the cost curve for phosphate fertilizer, though this is by far its smallest business.
Key Morningstar Metrics for Nutrien
Economic Moat Rating
We award a narrow economic moat rating to Nutrien for its cost advantage in potash and nitrogen. We expect potash to account for a little over one third of midcycle profits. Nutrien’s potash mines sit on the low end of the global cost curve due to favorable geology that results in lower mining and processing costs versus peers. Nutrien’s nitrogen business, which we expect to account for just under 20% of midcycle profits, also benefits from a low-cost position. Three fourths of the company’s nitrogen is produced using low-cost North American natural gas, which provides Nutrien with a strong cost-advantaged operation. The company’s nitrogen assets in Alberta, which account for one third of production, benefit further from lower transportation costs versus competitors that have to ship nitrogen to the region. We don’t think the retail and phosphate businesses have an economic moat.
Read more about Nutrien’s moat rating.
Fair Value Estimate for Nutrien Stock
Our discounted cash flow valuation uses a 9.5% weighted average cost of capital and a terminal value multiple of 10.0 times enterprise value/EBITDA to value cash flows after our 10-year explicit forecast. In the retail business, we expect mid-single-digit profit growth on average through 2030 as the company expands store count though small acquisitions and sells a greater proportion of proprietary and private-label products, which carry higher margins. In the long term, we forecast potash prices will rise in line with the marginal cost of production as farmer demand for potash grows and outpaces current supply. We expect Nutrien to increase production volume but remain below its capacity of 15.5 million metric tons. For urea nitrogen fertilizer, we see prices rising slightly longer-term. Over the next several years, Nutrien’s margins should benefit from increasing volume and producing an increasing proportion of nitrogen using low-cost North American natural gas.
Read more about Nutrien’s fair value estimate.
Risk and Uncertainty
The largest risk to Nutrien’s profits is fertilizer prices, which historically have fluctuated wildly due to supply and demand imbalances. Crop prices, which take their cues from demand and weather, shape farmer incomes, which in turn determine fertilizer purchases for a given year. Fertilizer demand and prices are at risk from disruption from genetically modified crops and biologicals that allow crops to use less fertilizer. Fertilizer production costs are another risk as the health of Nutrien’s nitrogen business is closely tied to the price of natural gas, which is the largest component of nitrogen production costs. The company is also exposed to underground mining risks associated with potash assets.
Read more about Nutrien’s risk and uncertainty.
Nutrien Bulls Say
Declining arable land per person will force growers to be more productive and should drive growth in a variety of crop inputs.Potash application rates in China and India lag scientifically recommended levels. As these countries work to secure their food supply, increasing potash application is a relatively pain-free way to raise crop yields and food production, which will result in higher demand growth for potash.Fertilizer prices will rise as demand outpaces supply in the coming years.
Nutrien Bears Say
Volatile pricing and demand for crop nutrients have characterized Nutrien’s business during the past few years, highlighting the cyclical nature of the company’s cash flows.Long-term oversupply threatens to reduce the marginal cost of production in potash and lower long-term prices. This includes BHP’s Jansen greenfield project and brownfield expansions from existing producers.Fertilizer prices have fallen below midcycle levels, which will weigh on Nutrien’s profits.
This article was compiled by Susan Dziubinski and Sylvia Hauser. Data as of Jan. 29, 2025.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.