Picture supply: Getty Pictures
Nutrien Ltd. (TSX:NTR) launched its earnings report for the third quarter of fiscal 2023 firstly of the month, and the main agricultural inventory missed its anticipated earnings by a large margin. The earnings outcomes triggered a fast 16.2% decline in its valuation on the inventory market.
As of this writing, Nutrien inventory trades for $105.12 per share. Whereas it’s up by 15.20% 12 months thus far, the agricultural large is down by virtually 29% from its 52-week excessive at present ranges.
What occurred with Nutrien inventory?
Wall Avenue anticipated Nutrien to report Q3 income of US$8.7 billion. Nutrien’s income was up by 36% 12 months over 12 months. Nonetheless, it missed the anticipated mark, reporting US$8.2 billion in income. The market consensus for Nutrien inventory’s earnings per share (EPS) was US$3.97. Nonetheless, Nutrien reported an EPS of US$2.9.
The earnings miss within the quarter caught many abruptly, contemplating the inventory acquired a lift by way of an impairment reversal price US$330 million for its phosphate enterprise, owing to a beneficial outlook for its revenue margins. The breakout of the Russia-Ukraine battle earlier this 12 months noticed the corporate forecast increased costs for agricultural commodities.
If the upper costs are sustained, the corporate ought to rake in substantial money flows and keep its file earnings and income spree for the 12 months. With its earnings report lacking the mark, the frustration and subsequent sell-off didn’t come as a shock. Administration’s determination to decrease its earnings steering for the complete 12 months didn’t assist both.
A development spurt or dash?
Nutrien has been consolidating the largely fragmented agriculture business for a number of years. Its natural and acquisition-based development has led to large development in revenues and earnings. Nonetheless, the corporate recorded decrease gross sales in North America in its newest quarter.
Its potash gross sales declined by virtually 60% within the area in comparison with the identical interval final 12 months. Increased costs certainly assist its revenue margins, however affordability is a essential concern that stored its gross sales volumes down.
Rising rates of interest have impacted each business, and it has not spared Nutrien inventory. The corporate accordingly adjusted its earnings steering for the 12 months. It was beforehand anticipated to generate an EBITDA of wherever between US$14 billion and US$15.5 billion.
Since its earnings launch, Nutrien has lowered the vary to US$12.2 billion and US$13.2 billion. The ag options supplier remains to be worthwhile as a enterprise, however its margins are considerably decrease than beforehand anticipated.
Silly takeaway
The query is: Is Nutrien inventory a purchase at present ranges as an undervalued inventory or not?
The troublesome scenario in its North American market amid rising rates of interest may lead to a goodwill write-down. What does that imply? The money movement low cost charges corporations use in impairment testing for goodwill rise due to increased rates of interest.
Nutrien inventory’s cash-generating models (CGUs) within the area have a mixed goodwill allocation of US$6.9 billion. Its CGUs barely handed the impairment check within the previous quarter.
One other hike of 25 foundation factors in the important thing rates of interest may lead to a US$500 million write-down in goodwill carrying quantities on North American enterprise models. Contemplating its EBITDA estimates for the 12 months as they stand now, the corporate’s administration may not have the grounds to enhance its earnings assumptions by the top of the 12 months.
Buying and selling at a 5.6 trailing price-to-earnings ratio, NTR inventory seems to be attractively priced at present ranges. Rising affordability considerations, potential value normalization, and local weather change considerations could negatively affect its income within the coming years. Nutrien inventory generally is a good guess if issues normalize for the higher. Nonetheless, it seems too dangerous to purchase as issues stand.
