In the next two parts of this series, we’ll compare agribusiness companies’ valuation. Since some of these companies have and are expected to report negative earnings, we’ve used forward EV-to-EBITDA (enterprise value-to-earnings before interest, tax, depreciation, and amortization) multiples instead of PE (price-to-earnings) multiples.
Forward EV-to-EBITDA multiples
As shown in the above chart, most agribusiness stocks’ valuation multiples rose in 2016 and 2017, which may be due to expectations of improved EBITDA margins. The median valuation multiple of the nine stocks discussed in this series is 12.2x. Two companies, PotashCorp (POT) and CF Industries (CF), are above the median. PotashCorp’s valuation multiple stood at 12.9x on December 21. PotashCorp is one of the largest producers of potash in the industry (XLB) and produces at the lowest cost, which may explain its wide margin and high valuation multiple. The company has traded between 11.5x and 13.8x in 2017.
On December 21, CF Industries was also trading at a premium to the peer median, at 13x. CF Industries produces nitrogen fertilizers at some of the lowest costs among US companies, which may explain its wide margin and high valuation. The company has traded between 10.4x and 13.4x in 2017.
On the other hand, Agrium (AGU) and Mosaic (MOS) were trading below the peer median. On December 21, Agrium was trading at 10.9x, while Mosaic was trading at 9.3x. We’ll discuss the remaining five companies in the next part.