Hedgeye analysts Jay Van Sciver and Ben Ryan hosted an institutional call on Agrium (AGU) earlier this week. Here's the key takeaway:
Shares of Agrium have remained comparatively resilient in 2016, a trend which we expect to reverse in 2H16. As Agrium enters the back half of the year, wholesale margins are likely to see pressure amid lower fertilizer prices and higher input costs. While 1H16 retail margins benefited from early spring 2016 season planting and delayed fall 2015 nutrient application, such support should fade in 2H.
KEY topics of discussion:
- Broader Consideration of Retail Cyclicality: Product pricing, margins, and customer credit
- Fertilizer Prices vs. Input Costs: Nitrogen set-up for 2H16 margin pressure
- Capacity Growth & Exports: Chinese export trends, additional North American capacity
- Retail Supplier Consolidation: Merger activity and trends in supplier concentration over time
- Capital Allocation: Consideration of Agrium's redeployment of cycle peak profits
- Valuation vs. Cycle: Valuations outside of Ag boom for retail, wholesale; where we expect Agrium shares to trade.
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