The company was created by the government of Saskatchewan in 1975.
Potash Corp. has benefited from higher fertilizer application rates, higher crop plantings, increasing demand for biofuels and rising crop prices. Rising fertilizers prices, especially potash, will expand POT's margin.
The company's manufacturing plants are located in low-cost areas and its financials are solid. However, rising raw material prices force us to rate the stock a Hold with a target of $90. This is 7.0x our 2008 estimate.
Freddie Sell Rec Unchanged
The shares of Freddie Mac (FRE) have been extremely volatile over the past few weeks, since the U.S. federal regulators outlined their takeover plans for the two GSEs, trading between $0.25 per share and $2.95 per share.
We anticipate the volatility to continue as the market looks for further information on the future structure of these companies and their role in the housing markets. Further, as the housing situation continues to worsen, we anticipate higher losses and write-offs in the coming quarters. While there may be some trading opportunities on certain days due to the volatility, we would caution the investors that the risks associated with this stock currently outweigh any potential reward and thus it would be safer to stay away.
Valuation remains a messy exercise in the absence of good financial information for both FRE and Fannie Mae (FRE), its closest peer. Our ultimate goal is to value FRE based on a core version of operating earnings (avoiding the numerous mark-to-market adjustments for hedge instruments that fail to qualify for hedge accounting treatment), but as yet we have none to use. In our view, however, several things continue to argue for an average valuation.
Given the continued weakness in the housing markets, we are increasing our loss estimate for FY08 and FY09 to $4.69 per share and 0.98 per share respectively. Our Sell recommendation on the shares remains unchanged but we are lowering our six-month price target to $0.80 per share.
OSI Pharma Gets Bad News
Biotechnology company
OSI Pharmaceuticals, Inc. (
OSIP) announced that a randomized phase III study evaluating Avastin in combination with Tarceva in patients with advanced non-small cell lung cancer failed to meet its primary endpoint of improving overall survival compared to Tarceva in combination with a placebo. We believe the data will have a negative effect on the share price in the short term and since the price has already achieved our target, we are downgrading the shares from Buy to Hold.
However, we think the impact of the data is limited in the long run, as the results do not affect Tarceva's approved indication for non-small cell lung cancer, and the median survival actually supports the role of Tarceva in the treatment of the advanced indication. Strong domestic sales and robust growth in ex-U.S. sales have us modeling over $1.1 billion in Tarceva sales in 2008 and beyond.
We remain excited about the revenue from the New York-based company's DPP-IV estate. Additionally, the company's pipeline targets diseases like diabetes, obesity and cancer, the very specific areas where its strengths lie. With $435 million in cash and cash equivalents, OSI may bolster its pipeline by acquiring research assets / additional technology in the near future. Keeping these factors in mind, we still think OSIP is a core holding in biotech portfolio. Our target price of $46.
