UBS Lowers Nutrien Rating to ‘Neutral’ Due to Weak Agricultural Outlook, Reduces Price Target to $51

UBS has downgraded Nutrien to a “neutral” rating from a “buy,” citing a weaker agricultural market outlook and diminishing free cash flow prospects.

Analysts had previously anticipated that Nutrien’s stock could recover as potash markets stabilized, but recent earnings forecasts have revealed a less optimistic near-term scenario. UBS now expects Nutrien’s earnings in the nitrogen and potash segments to remain steady, but with limited potential for growth.

The decline in fertilizer prices and a slower-than-expected recovery in retail earnings have diminished Nutrien’s free cash flow capacity, prompting UBS to revise its price target for the company from $66 to $51. This target indicates that Nutrien is currently trading near its fair value, with a free cash flow yield of around 6%.

While analysts believe that the company’s retail earnings will improve over the coming years, ongoing challenges in the potash and nitrogen markets are expected to hinder overall performance. Specifically, even though the potash market is currently balanced, it faces potential oversupply issues beginning in 2027 due to new production capacity expected from BHP’s Jansen project.

UBS analysts, led by Joshua Spector, also forecast that Nutrien’s free cash flow to EBITDA conversion rate will average around 25% over the next three years. This represents a decline from historical levels, largely due to ongoing capital expenditures and capital lease payments, which are constraining the company’s cash generation.

Without an increase in fertilizer prices or a reduction in capital spending, UBS maintains that Nutrien’s shares are unlikely to see significant gains in the medium term.