It appeared final 12 months that fertilizer big Nutrien (TSX:NTR) has vibrant prospects amid rising geopolitical tensions. Financial sanctions on Belarus and Russia made fertilizer provides tight, which finally led to a give attention to Nutrien. Nevertheless, the inventory has been on a big downtrend and has misplaced 35% since final 12 months.  

What’s subsequent for Nutrien inventory?

Whereas demand and provide stay in favour of Nutrien, the corporate has seen margin contraction within the final three quarters. There was a decline in working margin from 35% within the second quarter (Q2) of 2022 to 24% in This fall 2022. Plus, there was some worth moderation in key fertilizers in the previous few months, which has additionally weighed on NTR inventory. Nevertheless, it appears properly positioned on a valuation entrance and will see a restoration later this 12 months.

Nutrien is a $49 billion vertically built-in fertilizer manufacturing firm. It produces nitrogen, potash, and phosphate, together with operations in retail in seven nations. Amongst friends, it has a aggressive benefit of scale together with a few of the lowest-cost manufacturing resulting from its built-in operations.  

In 2022, the corporate reported free money flows of $5.7 billion, marking a good-looking 185% improve in comparison with 2021. Its increased manufacturing amid the sturdy worth atmosphere performed out properly final 12 months.

Progress drivers and prospects

Nutrien reiterated in its latest launch that demand, significantly within the potash phase, is outpacing provide. The scenario is anticipated to persist in the long run, which can be helpful for a low-cost producer Nutrien.

Consequently, the corporate forecasts to succeed in an operational potash capability of 18 million metric tonnes by 2026. Potash shipments from Russia and Belarus, the second- and third-largest international suppliers, are anticipated to fall 25% and 50% this 12 months, respectively. So, the provision constraints will doubtless result in increased costs, benefitting corporations like Nutrien.

Even when there’s a softer demand outlook within the brief to medium time period resulting from recession fears, Nutrien is assured of upper market demand in the long run.

Nutrien has given an adjusted EBITDA (earnings earlier than curiosity, tax, depreciation, and amortization) steerage of $9.5 billion for 2023 — that’s a 20% decline in comparison with 2022.

Give attention to shareholder returns

For the reason that starting of 2022, Nutrien has purchased again 61 million shares of the full excellent, representing 10% of the float. It has additionally raised quarterly shareholder payouts by 10% this 12 months. For 2023, the corporate will now pay a complete dividend of $2.12 per share, implying a yield of almost 3%.

The administration’s give attention to each buybacks and dividends signifies the corporate’s strong stability sheet power and earnings stability. The buybacks will doubtless increase its per-share earnings and make current shareholders’ stake extra worthwhile.

On a valuation entrance, NTR inventory is presently buying and selling 10 instances its 2023 earnings and appears comparatively pretty priced. That’s near the business common as properly.

Backside line

Essentially, Nutrien looks as if a good guess. Tightly equipped markets will doubtless be a giant progress driver for the corporate for the subsequent few years. Its strong stability sheet and earnings visibility might drive shareholder worth in the long run. However on the similar time, buyers must also take into account its correlation with fertilizer costs. The component of cyclicality makes it a dangerous guess.