When Potash Corp. defended itself from BHP Billiton Ltd.'s hostile takeover bid last fall, chief executive officer Bill Doyle stressed that the potash market was coming back and that his company was worth so much more than what BHP had offered to pay.
Now the question is no longer whether or not the potash market will come back, because it already has, but how much more will it grow? Will it soar like it did from 2007 to 2008, which sent Potash Corp.'s stock soaring from $55 to more than $200?
RBC Dominion Securities analyst Fai Lee is betting on a considerable boost. "Based on our outlook for upward pricing momentum particularly in the offshore markets and continued strength in North American pricing, we have increased our 2012 realized potash price assumption from $425/tonne to $500/tonne," he wrote in a recent note to clients.
The confidence comes on the back of strong earnings from Potash Corp. prompted Mr. Lee to up his Potash Corp. price target from $170 to $204 (or $68 after the three-for-one split). But that isn't the only producer that benefits. Mr. Lee also bumped up Agrium Inc.'s target from $100 to $106 and Mosaic Co. from $90 to $102.
Not everyone believes the hype. TD Securities analyst Paul D'Amico actually values Potash Corp. at a much lower price, having just slapped a $165 (U.S.) target on the shares. Contrary to RBC's optimism, Mr. D'Amico actually sees a slow down in potash pricing because a recent Canpotex contract with China was signed at $400/tonne. Mr. D'Amico isn't negative on Potash Corp.'s stock, but he does think it's already fully valued.
Tim Kiladze