This year’s earnings guidance of Potash Corp of Saskatchewan has already started to look a bit shaky following the continuous decline in potash prices, which puts more and more pressure on producers. At the beginning of this year, the Canadian potash giant predicted earnings of US$90 cents to US$1.20 a share this year. According to Jacob Bout of CIBC World Markets, the company will also likely reduce the low end of that guidance. Mr Bout is also concerned about the dividend, although it has already been lowered earlier this year. Yet, he believes that Potash Corp could support the current dividend by taking on debt or by selling its stakes in other fertilizer firms.
CIBC World Markets also downgraded the stock to sector performer (decreased from outperform) and lowered the price target to US$20 a share (from US$23). Mr Bout commented that the downgrade reflects the possibility that potash markets may remain soft for the “foreseeable future” because of the price competition among the producers. “While we were hopeful that producer discipline would help to stop the slide in potash prices, we are still seeing evidence in the US and Asian markets of a continued fight for market share that trumps producer discipline,” he further explained in a statement.