Potash Corp. may reduce 2016 guidance: CIBC

Potash prices have continued to decline in recent weeks, putting significant pressure around the producers. As a result, Potash Corp. of Saskatchewan Inc.’s 2016 earnings guidance – that was announced barely 8 weeks ago – is already looking shaky, based on CIBC World Markets analyst Jacob Bout.

In late January, Potash Corp. predicted earnings of US90 cents to US$1.20 a share this year. Bout said he thinks the company will lessen the low end of that guidance.

He is also worried about the dividend, though it was already lowered captured. By his numbers, the payout ratio is 131 per cent in 2016 and 78.2 percent in 2017. However, Bout believes the company could support the current dividend by taking on debt or by selling its stakes in other fertilizer companies.

Bout downgraded the stock to sector performer (from outperform) and slashed his price target to US$20 a share (from US$23). He said the downgrade reflects the chance that potash markets could remain soft for the “foreseeable future” due to price competition among the producers.

“In the end were hopeful that producer discipline is needed to prevent the slide in potash prices, we are still seeing evidence in the U.S. and Asia markets of a continued fight for market share that trumps producer discipline,” he explained inside a note.