24 January 2011

Rail Potash Firms Likely to be Healthy

Toronto Ontario - Economic data and corporate profits will guide investors this week as the Canadian companies begin reporting fourth-quarter earnings in earnest and the market sees the latest take on U.S. economic growth.
 
Earnings from the two major railroads, Canadian National Railways and Canadian Pacific Railway, are expected on Wednesday and fertilizer giant Potash Corp. of Saskatchewan on Thursday.
 
Amid growing demand for fertilizer, Potash Corp. shares have surged from a low of just under $90 last July, a couple of weeks before BHP Billiton made its unsuccessful bid for the western company, to a high of about $172 early last week.
 
"At $170, it's trading above the highest it traded during the whole BHP Billiton takeover attempt," said Colin Cieszynsky, market analyst at CMC Markets Canada.
 
"That's the biggest thing you have to watch out for now is fear of disappointment."
 
But Cieszynski thinks the near-term prospects for Potash Corp. are positive.
 
"The fallout we'll see from the droughts in Europe last year and the floods in Australia is poor crops or wiped out crops and because of this we would expect to see a lot of planting," he said.
 
"The next quarter, couple of quarters, could be spectacular for them."
 
Cieszynski noted the railroads face a greater challenge than a company like Potash because the Saskatoon-based company is driven by global supply and demand not the domestic economy.
 
"Some of the companies that are more reliant on the Canadian economy specifically might be a little bit more vulnerable between the rising loonie and the softening in the economy, especially in the last quarter," he said.
 
At the same time, the bottom lines of CN and CP should benefit from the strong run up in commodity prices this past year.
 
The Canadian railway earnings follow a particularly strong report from U.S. railway Union Pacific last week. The largest U.S. rail carrier said its fourth-quarter profit soared 41 percent as the U.S. economy gained momentum and the company's shipping volume increased.
 
Mmalcolm Morrison.