CS First Boston initiates Agrium Inc. (AGU ) coverage with outperform and an $18 target.
Analyst William Young says nitrogen-based crop nutrients represent two-thirds of Agrium's fertilizer sales, and associated earnings per share are very volatile. He notes fertilizer earnings per share were depressed for several years but improved dramatically in 2004. Further margin expansion expected in potash.
He says the company's retail distribution business in the U.S. generates relatively stable EBIT, which helps mute volatility in fertilizer earnings per share. He believes a deal reached with Unocal for a natural gas supply to Agrium's Kenai, Alaska nitrogen facility is a positive for Agrium's stock price.
Young sees $1.49 2004 earnings per share, and $1.85 2005 earnings per share.