Nutrien Shares Are Fairly Valued After Q4 Results

After updating our Nutrien model to incorporate the company’s fourth-quarter earnings, we maintain our $80 per share fair value estimate. Our CAD fair value estimate falls to CAD 107 from CAD 110 on currency movements since our last update. Our narrow moat rating is unchanged.

At current prices, we view Nutrien shares as fairly valued with the stock trading in 3-star territory just below our fair value estimate. As such, we recommend investors wait for a pullback in shares before considering an entry point.

As one of the largest fertilizer producers globally, Nutrien benefited from fertilizer prices hitting all-time highs in 2022 due to the fertilizer supply shocks that came from the Russia-Ukraine conflict—namely lower exports of fertilizer and natural gas from Russia—and China’s reduced exports. However, higher prices and poor weather that reduced planted acres led to lower fertilizer demand. In turn, as supply returned to the market, prices quickly fell from cyclically high levels.

In potash, we expect contract prices between Canpotex (Nutrien and Mosaic’s potash export joint venture) and China and India, which typically inform the rest of the global market will fall from $590 per metric ton in 2022. While a contract price has not yet been set, we wouldn’t be surprised to see a decline below $500 per metric ton for 2023. This should lead to lower potash profits for Nutrien.

In nitrogen, we expect a similar outlook as potash, where Nutrien should see profits fall as amid lower prices in 2023. European natural gas prices, which are typically the feedstock for marginal cost producers, have fallen from 2022 levels, lowering the marginal cost of nitrogen production. We forecast 2023 nitrogen (urea) prices of $450 per metric ton, well below the $700 average in 2022. For Nutrien, lower prices will be partially offset by lower North American natural gas prices, which generates around two thirds of Nutrien’s feedstock.