Bear of the Day: Nutrien, Ltd. (NTR)

Nutrien NTR produces and sells fertilizers and related industrial and feed products. NTR offers potash, nitrogen, phosphate, and sulfate products. Based in Saskatoon, Canada, Nutrien also distributes crop nutrients, protection products, and seeds through approximately 2,000 retail locations internationally.

Higher costs are expected to impact company margins. During the fourth quarter of last year, Nutrien saw a 13% rise in the cost of goods sold, with increases across all segments. The company's nitrogen business is also expected to face pricing headwinds in the short-term.

The Zacks Rundown

NTR, a Zacks Rank #5 (Strong Sell), is a component of the Zacks Fertilizers industry group, which ranks in the bottom 4% out of approximately 250 Zacks Ranked Industries. As such, we expect this industry group as a whole to underperform the market over the next 3 to 6 months, just as it has recently:

Image Source: Zacks Investment Research

Candidates in the bottom tier of industry groups can often be solid potential short candidates. While individual stocks have the ability to outperform even when included in a poor-performing industry group, the inclusion in a weaker group serves as a headwind for any potential rallies and the journey forward is that much more difficult.

Along with many other fertilizer stocks, NTR has been underperforming this year. The share price is hitting a series of 52-week lows and represents a compelling short opportunity as the market remains volatile.

Recent Earnings Misses & Deteriorating Outlook

NTR has fallen short of earnings estimates in three of the past four quarters. The company most recently reported a Q4 profit of $2.02/share back in February, missing the $2.63/share consensus EPS estimate by -23.2%. The stock has moved steadily lower since the announcement.

Over the past four quarters, NTR has delivered an average earnings miss of -13.94%. Consistently falling short of earnings estimates is a recipe for underperformance, and Nutrien is no exception.

NTR has been on the receiving end of negative earnings estimate revisions as of late. Looking into the year as a whole, analysts have decreased 2023 EPS estimates by -9.6% in the past 60 days. The Zacks Consensus Estimate is now $8.66/share, reflecting negative growth of -34.3% relative to last year.

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Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.

Technical Outlook

As illustrated below, NTR in a sustained downtrend. Notice how the stock has plunged below both the 50-day and 200-day moving averages (signaled by the blue and red lines, respectively). The stock is making a series of lower lows, with no respite from the selling in sight. Also note how both moving averages are sloping down – another good sign for the bears.

Image Source: StockCharts

While not the most accurate indicator, NTR has also experienced what is known as a "death cross", wherein the stock's 50-day moving average crosses below its 200-day moving average. NTR would have to make a serious move to the upside and show increasing earnings estimate revisions to warrant taking any long positions in the stock. The stock has fallen more than 11% this year alone.

Final Thoughts

A deteriorating fundamental and technical backdrop show that this stock is not set to return to its former highs anytime soon. The fact that NTR is included in one of the worst-performing industry groups adds yet another headwind to a long list of concerns. A history of earnings misses and falling future earnings estimates will likely serve as a ceiling to any potential rallies, nurturing the stock's downtrend.

A series of 52-week lows indicate that the downtrend is likely far from over. Potential investors may want to give this stock the cold shoulder, or perhaps include it as part of a short or hedge strategy. Bulls will want to steer clear of NTR until the situation shows major signs of improvement.

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