TD Securities, CIBC World Markets and RBC Dominion Securities all advised on the failed takeover of Potash Corp. of Saskatchewan Inc. , which restricted them from issuing new research reports on the company.
Now that BHP Billiton Ltd. has pulled its bid, these banks are resuming coverage, forcing their analysts to assess where Potash's stock should trade without a takeover premium. On Tuesday CIBC released its first report post-bid.
"With POT no longer a takeout candidate, we are reverting back to using a multiple-based approach to derive our [price target](versus NAV-based)," wrote analyst Jacob Bout. His $160 target is based on a 15 times price-earnings multiple, which he said is in line with the stock's historical trading range before takeover speculation emerged.
Looking solely at the company's operations, CIBC noted that its price target is largely a reflection of improved potash pricing. The bank expects stronger 2011 and 2012 earnings on the back of growing potash demand stemming from strong agricultural fundamentals.
RBC feels the same way, bumping its price target from $150 to $170. "Potash Corp. has lagged behind its fertilizer peer group, which has experienced share price gains in line with improving crop and fertilizer prices," analyst Fai Lee noted.