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Exploring Fertilizer Companies’ Valuation Multiples after 2Q16

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Valuation multiples

So far in this series, we’ve discussed how agricultural fertilizer companies (XLB) performed in 2Q16.

Given challenges in shipments and realized prices and key metrics such as margins and EPS (earnings per share), industry growth has been deeply impacted. This has cast a shadow on the future of the industry and investors’ willingness to invest.

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Valuation multiple

The median EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple of the companies we’ve discussed so far in this series is currently 9.7x, above the historical eight-year average of 8.5x.

Given that industry fundamentals have weakened and future prospects are still on shaky ground, the current valuation multiple could indicate that investors anticipate a turnaround in the near term.

Driving the median valuation multiple higher are PotashCorp (POT), Agrium (AGU), and Mosaic Company (MOS). These companies are trading above their historical median multiples at valuation multiples of 12x, 10.2x, and 10.1x, respectively.

CVR Partners (UAN) is trading at a multiple of 9.7x, which is right at the peer median and slightly below its historical average of 10.9x.

Israel Chemicals (ICL), CF Industries (CF), and Intrepid Potash (IPI) are all trading below the peer median at 8.7x, 8.4x, and 7x, respectively.

In the next and final part of this series, we’ll look at analysts’ recommendations and 12-month price targets for the companies we’ve discussed.

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