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Morningstar | Nutrien Reports Decent 1Q Results Despite Weather Issues; Shares Remain Undervalued

Nutrien's first-quarter results were once again affected by weather-related challenges that delayed farmer planting and the purchase of crop inputs and nutrients. However, the company still reported decent results as adjusted EBITDA grew 22% year on year to $697 million, driven largely by higher potash prices. Similar to last year, during which Nutrien made up nearly all forgone first-quarter sales volume over the remainder of the year, we expect nearly all forgone retail and fertilizer volume to once again be made up in 2019.

With our outlook largely unchanged, we maintain our $68 fair value estimate. Our Canadian fair value estimate increases to CAD 91 per share from CAD 89 due to a strengthening of the dollar versus the loonie since our last update. Our narrow moat rating is intact. At current prices, we view Nutrien as undervalued with the shares trading in 4-star territory.

In potash, adjusted EBITDA grew 41% year on year to $461 million thanks to higher prices. We maintain our long-term potash price forecast of around $300 per metric ton (on a China delivered basis) as new supply grows in line with demand. As Nutrien continues to optimize potash production across its mines, the company will be able to reduce cash production costs by roughly 10% from 2018 levels over the next couple of years. Half of the cost reductions will be achieved in 2019.

In nitrogen, adjusted EBITDA was up 1% year on year to $274 million as higher prices offset higher expenses from increased plant maintenance. In 2019, we expect more corn and less soybeans to be planted in the United States. This should boost nitrogen demand as corn requires nitrogen fertilizer, while soybeans naturally synthesize nitrogen from the air. As a result, we have slightly increased our 2019 nitrogen sales volume forecast. We maintain our long-term urea price forecast of $260 per ton in 2019 real terms.