Potash (NYSE:POT): Weakness Represents Excellent Buying Opportunity - RBC

From Notable Calls

RBC Capital is out very positive on Potash (NYSE: POT) noting that notwithstanding the potential for short-term share price volatility, they believe PotashCorp's current valuation represents an excellent buying opportunity for investors with a longer-term perspective. Strong earnings growth potential, a 2009E P/E multiple of 8.9x and 2009E free cash flow of $7.3 billion ($24.13/share) represent a few of PotashCorp's many attractive investment attributes. Based on its long-term growth potential and the implied all-in return to their price target, they view PotashCorp as extremely attractively valued.

Based on their supply and demand outlook, they generally expect fertilizer market conditions to remain robust through the medium term. With respect to concerns over the sustainability of high fertilizer prices, PotashCorp's management indicated during the Q2/08 conference call that they have not seen any signs of demand destruction under the current fertilizer pricing environment.

PotashCorp is currently trading at a 2009E EV/EBITDA multiple of only 5.4x. This is at the low-end of the historical trading range even though (1) interest rates are at historically low levels; (2) the company's future earnings outlook has never looked better; and (3) there are no obvious signs that the fertilizer industry is heading for a cyclical downturn anytime soon. Firm also believes the market is not assigning any value to PotashCorp's future potash expansion projects, which they estimate could add $90-$95 per share of incremental value.

Reits Outperform and $375 tgt.

Notablecalls: Can you say $200 POT?

http://notablecalls.blogspot.com/

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