RBC Capital Markets lowered its profit estimates for PotashCorp (POT) (POT.TO) after the company decided to fund its share buyback from sale of debt securities rather than utilizing its existing credit facilities.
While recognizing the increased financial flexibility and low interest rates associated with the new debt offering and the benefits of the share repurchase program, we believe funding the previously announced share repurchase program with existing credit facilities rather than long-term debt would have been slightly more preferable given the earnings impacts of the two financing options, analyst Fai Lee wrote in a note to clients.
On Nov. 22, PotashCorp said it will be raising $1 billion by issuing $500 million of 3.25 percent notes due Dec. 1, 2017 and $500 million of 5.625 percent notes due Dec. 1, 2040. The net proceeds will be used for general corporate purposes including PotashCorp's $2 billion share repurchase program announced on Nov.16, 2010.
Lee had assumed that the $2 billion share repurchase program would be funded with existing credit facilities at a lower interest rate.
As a result, the analyst cut its 2011 and 2012 profit forecast to $9.06 and $9.71 per share, respectively, from $9.13 and $9.80 per share. Wall Street expects earnings of $8.54 per share for 2011, according to analysts polled by Thomson Reuters.
Lee, however, maintained his outperform rating and price target of $170 on the PotashCorp stock.
PotashCorp is the world's largest producer of potash, nitrogen and phosphate products (based on capacity) for the fertilizer, feed and industrial markets.
Shares of PotashCorp closed Tuesday's regular trading session at $140.20 on the NYSE. On the Toronto stock exchange, they closed yesterday's trading at C$143.29.