UBS downgrades Nutrien to ‘neutral’ on weak Ag outlook, lowers PT to $51

Investing.com — UBS has downgraded Nutrien (NYSE:NTR) to a “neutral” rating from a “buy,” citing a weaker agricultural market outlook and diminishing free cash flow prospects. 

UBS analysts had previously expected that Nutrien’s stock could recover as potash markets stabilized, but their latest earnings forecasts revealed a less optimistic scenario for the near term. 

UBS now expects Nutrien’s earnings, particularly in its nitrogen and potash segments, to remain steady but with limited upside potential.

Lower fertilizer prices and a slower-than-expected recovery in retail earnings have reduced Nutrien’s FCF potential, leading UBS to revise its price target for the company to $51 from $66. 

This target reflects UBS’s view that Nutrien is trading near its fair value, with FCF yield at around 6%. 

Analysts point out that while the company’s retail earnings are expected to improve in the coming years, challenges in the potash and nitrogen markets will continue to weigh on overall performance. 

Specifically, the potash market, though balanced at present, faces potential oversupply issues starting in 2027 due to new production capacity coming online from BHP’s Jansen project.

UBS analysts, led by Joshua Spector, also note that Nutrien’s FCF to EBITDA conversion rate is forecasted to average around 25% over the next three years. 

This marks a decline from historical levels, driven by ongoing capital expenditures and capital lease payments, both of which are dampening the company’s cash generation. 

UBS maintains that without a rise in fertilizer prices or a reduction in capital spending, Nutrien’s shares are unlikely to see substantial gains in the medium term.