Nutrien Ltd. Is The Most Downgraded Stock For Income Investors

Key Points

• Nutrien shares hit bottom along with the Q1 results and guidance readjustment. 
• The dividend is sound and yields more than 3.5%, with shares at a 2-year low. 
• Analysts downgrade the stock but still Hold it and see double-digit upside potential. 

The list of Most Downgraded Stocks is one of Marketbeat’s most useful tools. Many names on the list, like Nutrien Ltd. NYSE: NTR, are high-quality stocks that aren’t meeting expectations. This may provide downward pressure for price action but is also an opportunity for investors looking to buy solid dividend-paying stocks at low prices. Nutrien received several downgrades, but the 19 analysts with current ratings Hold the stock and see about 35% of upside for the market. 

Nutrien trades about 9.5X its revised guidance, regarding value and yield, after a year of downtrending. The downtrend is due to the spike in commodity prices and subsequent spike, then decline, in revenue and earnings power. In that regard, Nutrien’s business appears to be stabilizing. 

Nutrien pays more than 3.5% regarding the yield, with shares trading near a 2-year low. That’s well above the broad market average, and the payout is safe and growing. The company is paying only 32% of EPS guidance at the midpoint of the range, and there are no red flags on the balance sheet. Long-term debt is less than 40% of equity, leaving cash flow relatively unhindered. The company has also been increasing the distribution for the last 3 years at a double-digit pace and may continue. 

Analysts Cut Targets For Nutrien, Double-Digit Upside Is Possible

Nutrien’s Q1 results were weak and resulted in a series of downgrades and price target reductions from the analysts. The company reported weak top and bottom line results and cut the guidance substantially due to the decline in realized prices. The takeaway is that results are sufficient to maintain the capital return program and well above typical Q1 earnings before the pandemic. 

The guidance, weaker than the Marketbeat.com analysts' consensus at the time of release, is also better than the pre-pandemic period. AT THE MIDPOINT, the FY 2023 guidance is about 5000 basis points better than the 2018 and 2019 periods combined. That’s solid news for long-term investors; execs may be overly cautious. They expect demand to pick up in the 2nd half, which may support the price of fertilizer commodities. 

“(We) anticipate increased demand in the second half of 2023 due to strong agriculture fundamentals, improved grower affordability and lower inventory levels. With fertilizer prices near mid-cycle levels, we expect to generate strong operating cash flows in 2023 and to maintain a balanced and disciplined approach to capital allocation,” said Ken Seitz, president and CEO.

So, the analysts didn’t like the news, but this is relative to bubble-inflated expectations. The takeaway is that business stabilizes above pre-pandemic levels and drives solid cash flows. The analysts, whose targets run in an extensive range, are Holding the stock for its dividend, which is as safe as ever. Additionally, the institutions, which own about 65% of the stock, have been buying on balance for 4 consecutive quarters at a pace of nearly 1.5:1. 

The Technical Outlook: Nutrien Bounces From Solid Support

The downtrend in Nutrien hit the bottom along with the Q1 results. The bottom is consistent with the pre-pandemic highs near $56. The market may consolidate at this level and move sideways within a range this year. Longer-term, it should build a base to rally from provided earnings growth returns, and the dividend should remain healthy.