The crop vitamins market is normalizing to mid-cycle ranges in 2023. Market merchants might by no means see the file fertilizer costs of the previous yr once more quickly. Nonetheless, Nutrien (TSX:NTR) inventory is an all-weather, cash-flow-rich, dividend-growth inventory that can proceed to nourish revenue and capital progress wants in traders’ long-term retirement plan portfolios.
Nutrien inventory is caught up in a damaging momentum spiral this yr. Shares commerce 42% under their all-time highs reached in 2022.
Income is declining off final yr’s peak, working earnings margins are shrinking, and Nutrien’s cash-flow-generating energy has waned in 2023. Nonetheless, a have a look at the larger image might determine Nutrien inventory as an excellent purchase after first-quarter (Q1) 2023 earnings.
Nutrien’s combined bag Q1 earnings
Nutrien’s Q1 income dropped by 20% yr over yr to US$6.1 billion, reflecting a normalized agricultural crop inputs market. Crop nutrient costs have normalized again to midcycle ranges, because the fertilizer market cools off a yr after the onset of a disruptive Russia/Ukraine battle. Nonetheless, quarterly web earnings of US$576 million have been the second highest of any Q1 income on file.
Gross and working margins shrank, as realized costs decline to normalized ranges, and the corporate is working by its high-cost stock construct. As traditional, free money movement was damaging for the quarter; nevertheless, the overall debt issued (practically US$3.4 billion) was highest over the last 5 quarters. Nutrien’s leverage is rising.
Must you purchase the dip in Nutrien inventory?
An funding in Nutrien inventory right now might reward you with a quarterly dividend that yields 3.4% yearly. It’s going to provide traders a rising stake in a well-established and worthwhile agricultural inputs enterprise that generates billions in free money movement yearly. Capital positive aspects will flip optimistic as soon as ongoing income declines stabilize in a normalized market.
Nutrien inventory value has fallen under January 2022 ranges after months of damaging value momentum. The January 2022 interval is a key reference level. It lies earlier than the brake out of the Russia/Ukraine battle that triggered turmoil within the international fertilizers market, triggering a rally in North American fertilizer producers’ inventory costs. Shares commerce cheaper because the negativity of declining gross sales drags inventory values decrease. Nonetheless, the decline may very well be overdone.
After an enormous share-repurchase program, the corporate has 11% fewer shares excellent right now in comparison with January 2022. Administration splashed greater than $6 billion in cumulative share repurchases over the previous 5 quarters, as the corporate made file income and booked file money movement final yr.
The corporate continues to be repurchasing shares, and the remaining shareholders have a rising stake in its future earnings and money movement.
Shares look low-cost at a ahead price-to-earnings (P/E) a number of of 9 that lies far under NTR’s peak ahead P/E of 25 a mean of 14.4 because the merger of Agrium and Potash Corp in 2018.
Nutrien is a long-term, buy-and-hold Canadian supplies inventory that ought to do effectively sooner or later as crop manufacturing ranges stay excessive and farming yields stay elevated in North America, and because it grows its international market share with acquisitions in Brazil.