BUSINESS
Nutrien Ltd. provides crop inputs and services. It offers potash, nitrogen, phosphate, and sulfate products; and financial solutions. The company also distributes crop nutrients, crop protection products, seeds, and merchandise products through approximately 2,000 retail locations in the United States, Canada, South America, and Australia. In addition, it provides services directly to growers through a network of farm centers in North America, South America, and Australia. The company was founded in 2017 and is headquartered in Saskatoon, Canada.
INVESTMENT RATING
With future capital returns forecasted to exceed the cost of capital, NTR is expected to continue to be a Value Builder.
Nutrien has a current Value Trend Rating of C (Neutral).
This rating combines very contradictory signals from two proprietary PTR measures of a stock’s attractiveness. Nutrien has a very high Appreciation Score of 93 but a very low Power Rating of 15, and the Neutral Value Trend Rating results.
Nutrien’s stock is selling well below targeted value. The current stock price of $50.44 compares to targeted value 12 months forward of $219.
Nutrien’s very high appreciation potential results in an appreciation score of 93 (only 7% of the universe has greater appreciation potential.)
Nutrien has a Power Rating of 15. (This very low Power Rating indicates that NTR only has a better chance of achieving attractive investment performance over the near to intermediate term than 15% of companies in the universe.)
Factors contributing to this very low Power Rating include: the Agriculture Chemicals comparison group is in an extremely unfavorable position currently; the trend in NTR’s earnings estimates has been unfavorable in recent months; and recent price action has been slightly unfavorable.
INVESTMENT PROFILE
Nutrien’s financial strength is high. Financial strength rating is 73.
Relative to the S&P 500 Composite, Nutrien Ltd has moderate Value characteristics; its appeal is likely to be to investors heavily oriented toward Income; the perception is that NTR is normal risk. Relative weaknesses include: low forecasted profitability, low historical profitability, low historical growth, and high earnings variability. Nutrien’s valuation is low: high dividend yield, low P/E ratio, and low price/book ratio. NTR has normal market capitalization.
CURRENT SIGNALS
Nutrien’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; falling tax keep rate; and falling leverage.
Nutrien’s current technical position is very weak. The stock price is in a 6.5 month down move. The stock has declined 21.6% from its prior high. The stock price is below its 200 day moving average which is in a downtrend.
ALERTS
Positive development: significant quarterly earnings acceleration occurred. Negative development: significant quarterly sales deceleration occurred.
In light of this new information we are reviewing our current Overall Rating of C. This review will be completed in the next several days.
For its fourth fiscal quarter (ending December 31), Nutrien Ltd (NYSE: NTR) has reported E.P.S. of $0.35 compared to $2.15 a year ago. E.P.S. were $2.53 for the latest four quarters through December 31 versus $14.22 for the same period a year ago.
On 2/21/24, Nutrien Ltd (NYSE: NTR) stock declined slightly by -0.3%, closing at $50.44. Trading volume in this decline was normal. The stock has been weak relative to the market over the last nine months but has risen 0.8% during the last week.
CASH FLOW
In 2022, Nutrien generated a very significant increase in cash of +$402 million (+81%). Sources of cash were much larger than uses. Cash generated from 2022 EBITDA totaled +$13,007 million. Non-operating uses consumed -$165 million (-1% of EBITDA). Cash taxes consumed -$2,177 million (-17% of EBITDA). Re-investment in the business amounted to -$5,263 million (-40% of EBITDA). On a net basis, debt investors furnished +$494 million (+4% of EBITDA) while equity investors pulled out -$5,494 million (-42% of EBITDA).
Nutrien’s Non-operating Income, %EBITDA has experienced a minor downtrend over the period. This downtrend was accompanied by stability for the Nutrien Peer Group. In most years, Nutrien was in the top quartile and third quartile. Currently, Nutrien is slightly above median at -1% of EBITDA (-$165 million).
Nutrien’s Cash Taxes, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by an uptrend for the Nutrien Peer Group. (Since 2020 Cash Taxes, %EBITDA has experienced a very sharp decline.) In most years, Nutrien was in the third quartile and top quartile. Currently, Nutrien is substantially below median at -17% of EBITDA (-$2,177 million).
Nutrien’s Business Re-investment, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Nutrien Peer Group. In most years, Nutrien was in the second quartile and top quartile. Currently, Nutrien is below median at -40% of EBITDA (-$5,263 million).
Nutrien’s Debt Investors, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Nutrien Peer Group. In most years, Nutrien was in the third quartile and second quartile. Currently, Nutrien is slightly above median at +4% of EBITDA (+$494 million).
Nutrien’s Equity Investors, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Nutrien Peer Group. In most years, Nutrien was in the lower quartile and top quartile. Currently, Nutrien is slightly below median at -42% of EBITDA (-$5,494 million).
Nutrien’s Change in Cash, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by stability for the Nutrien Peer Group. In most years, Nutrien was in the second quartile and lower quartile. Currently, Nutrien is above median at +3% of EBITDA (+$402 million).
Nutrien’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by stability for the Nutrien Peer Group as well. In most years, Nutrien was in the third quartile and lower quartile. Currently, Nutrien is lower quartile at +2%.
PROFITABILITY
Nutrien’s return on equity has eroded modestly since 2013. The current level of 8.7% is 2.22X the low for the period and is -52.9% from the high.
Nutrien’s strong positive trend in pretax operating return significantly offset by a very strong negative trend in non-operating factors is a major performance consideration.
The productivity of Nutrien’s assets rose over the full period 2013-2023: asset turnover has enjoyed a very strong overall uptrend that sharply accelerated after the 2016 level.
Nutrien’s pretax margin has experienced a downtrend over the period 2013-2023.
Non-operating factors (income taxes and financial leverage) had a significant negative influence on return on equity.
Nutrien’s return on equity is below median (8.7%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is at the upper quartile (6.4%) reflecting asset turnover that is upper quartile (0.59X) and pretax margin at the lower quartile (10.8%).
Tax “keep” rate (income tax management) is lower quartile (65.7%) resulting in after tax return on assets that is at the upper quartile.
Financial leverage (leverage) is lower quartile (2.08X).
GROWTH RATES
There are no significant differences between Nutrien’s longer term growth and growth in recent years.
Nutrien’s historical income statement growth and balance sheet growth have diverged. Revenue growth has exceeded asset growth; earnings growth has paralleled equity growth.
Annual revenue growth has been 15.2% per year.
Total asset growth has been 8.2% per year.
Annual E.P.S. growth has been 5.8% per year.
Equity growth has been 7.4% per year.
No consensus growth rate forecast is available for Nutrien.
Relative to the Nutrien Peer Group, Nutrien’s historical growth measures are generally top quartile. Revenue growth (15.2%) has been upper quartile. Equity growth (7.4%) has been upper quartile. Total asset growth (8.2%) has been at the upper quartile. E.P.S. growth (5.8%) has been slightly above median.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Nutrien’s stock price performance has been variable and significantly below market. Between April, 2013 and February, 2024, Nutrien’s stock price fell -52%; relative to the market, this was a -85% loss. Significant price moves during the period: 1) June, 2020 – March, 2022: +224%; and 2) June, 2014 – July, 2016: -59%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -37.7% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through January, 2024 of -37.7% is lower quartile relative to Nutrien Ltd Peer Group.
Current 5-year total return performance of 2.6% is lower quartile relative to the S&P 500 Composite.
Through January, 2024, with lower quartile current 5-year total return of 2.6% relative to S&P 500 Composite, Nutrien’s total return performance is at the lower quartile relative to Nutrien Ltd Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, NTR’s overall valuation is exceptionally low. All five factors are lower quartile. The highest factor is the ratio of enterprise value/assets, followed by the price/earnings ratio, then by the ratio of enterprise value/earnings before interest and taxes, then by the ratio of enterprise value/revenue. The lowest factor is the price/equity ratio.
Relative to Nutrien Peer Group, NTR’s overall valuation is exceptionally low. All five factors are lower quartile. The highest factor is the ratio of enterprise value/assets, followed by the price/earnings ratio, then by the price/equity ratio, then by the ratio of enterprise value/earnings before interest and taxes. The lowest factor is the ratio of enterprise value/revenue.
Nutrien has a major value gap compared to the median. For NTR to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 1.29X to 3.86X. If NTR’s ratio of enterprise value/revenue were to rise to 3.86X, its stock price would be higher by $160 to $211.
For NTR to achieve upper quartile valuation relative to the Nutrien Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 1.29X to 4.63X. If NTR’s ratio of enterprise value/revenue were to rise to 4.63X, its stock price would increase by $209 from the current level of $50.
VALUE TARGETS
With future capital returns forecasted to exceed the cost of capital, NTR is expected to continue to be a Value Builder.
Nutrien’s current Price Target of $217 represents a +330% change from the current price of $50.44.
This very high appreciation potential results in an appreciation score of 93 (only 7% of the universe has greater appreciation potential.)
Notwithstanding this high Appreciation Score of 93, the low Power Rating of 15 results in an Value Trend Rating of C.
Nutrien’s current Price Target is $217 (+3% from the 2022 Target of $210 and +330% from the 02/21/24 price of $50.44). This plateau in the Target is the result of a +14% increase in the equity base and a -9% decrease in the price/equity multiple. The forecasted decline in return on equity has a very large negative impact on the price/equity multiple and the forecasted decline in growth has a slight negative impact as well. Partially offsetting these Drivers, the forecasted decline in cost of equity has a huge positive impact.
PTR’s return on equity forecast is 8.4% — significantly below our recent forecasts. Forecasted return on equity exhibited a modest, erratic decline between 2014 and 2022. The current forecast is well below the 2014 peak of 17%.
PTR’s growth forecast is 11.0% — slightly below our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is significantly above the 2017 low of 0%.
PTR’s cost of equity forecast is 4.6% — below recent levels. Forecasted cost of equity exhibited a modest, erratic increase between 2014 and 2022. The current forecast is below the 2014 peak of 7.9%.
At Nutrien’s current price of $50.44, investors are placing a negative value of $-23 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 13.0% per year, and a return on equity of 21.8% versus a cost of equity of 11.7%.
PTR’s 2024 Price Target of $217 is based on these forecasts and reflects an estimated value of existing assets of $59 and a value of future investments of $158.
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