Stock News : Potash Corp. (NYSE: POT) should accept BHP Billiton’s offer, as the stock is over-valued

Potash Corp. of Saskatchewan Inc. (NYSE: POT) shares are currently trading at $148.84 a gain of $36.69 which is 32.71% up from Monday’s closing price of $112.15. The company’s shares have 52-week trading range of $83.75 - $148.95. The daily average volume of the stock is 12.68 million shares. The company has 50 day moving average of $101.99 and 200 day moving average of $108.18. The RSI of the stock is 85.93, showing an overbought position of the stock. The sustenance and resistance levels of Potash Corp. are $139.19 and $151.20. The Market Capitalization of the company is $44.15 billion.

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Potash Corp. had received an offer from BHP Biliton plc of $38.6 billion or $130 per share, a mere premium 16% premium from the closing price prior to the offer. The offer from BHP Billiton was rejected on the grounds of insufficient compensation or undervalued offer. After the offer was rejected by the company the stock prices jumped up to $145. The stock is currently trading at $148 levels. Whether this a fair price for the stock or not everyone is guessing.

Therefore we assumed that Potash Corp. will achieve EBITDA margins of 28% for the next 5 year, this is the median EBITDA margin of the company in the past 5 years. Asset Turnover ratio to be the median asset turnover ratio of the past 5 years at 0.4 times for the next 5 years.  On the base of these assumptions, Potash Corp. would need to generate revenue growth of 58% per annum for the next 5 years to justify a price of $145. This means that the revenues of the company would increase from $4 billion to $40 billion by 2014.

Although Potash Corp. was able to achieve a sales growth of 80% in 2008, however maintain such high growth would not be possible for the company going forward. Analyst expects the company sales to grow at 43%, but a growth rate of 58% is out of the question for the company.

In short, the shares of Potash Corp. are currently overvalued and are worth less than the $130 per share that is offered by BHP Billiton. Potash Corp. shareholder should move out of the stock with the current price.

Potash Corp. of Saskatchewan Inc. is the world’s biggest potash producer. The company produces potash, phosphate, and nitrogen to the agricultural and industrial industries worldwide. The Company has operations in the United States, Canada, Brazil, Chile and Trinidad.

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