UBS Downgrades Nutrien to Neutral

UBS has downgraded Nutrien (NYSE:NTR) from a "buy" to a "neutral" rating, citing a weaker outlook for the agricultural market and decreased free cash flow (FCF) prospects.

Previously, UBS analysts anticipated Nutrien's stock could rebound as potash markets stabilized, but new earnings forecasts present a less optimistic view for the near term.

UBS now predicts that Nutrien's earnings, especially in nitrogen and potash sectors, will remain steady with limited growth potential. The reduction in fertilizer prices and slower recovery in retail earnings have diminished Nutrien’s FCF potential, prompting UBS to cut its price target for the company from $66 to $51.

This price target suggests that Nutrien is currently trading near its fair value, with an FCF yield of approximately 6%. Analysts indicate that while retail earnings are expected to improve in the coming years, challenges in potash and nitrogen markets will continue to impact overall performance.

Notably, the potash market, while balanced for now, may face oversupply issues beginning in 2027 due to new production capacity from BHP’s Jansen project. UBS’s analysts, led by Joshua Spector, also forecast that Nutrien’s FCF to EBITDA conversion rate will average around 25% over the next three years, reflecting a decline from historical levels due to ongoing capital expenditures and lease payments that hinder cash generation.

UBS asserts that without an increase in fertilizer prices or a decrease in capital spending, Nutrien's shares are unlikely to see significant gains in the medium term.