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Nutrien (NYSE:NTR) on Tuesday was downgraded to Neutral from a previous investment rating of Buy among analysts at financial-services firm Goldman Sachs. They said risks have grown at the maker of fertilizer from possible increases in bad-debt expenses at its lending unit.
“With second-quarter 2024 earnings, Nutrien (NTR) reported a notable increase in delinquencies, but a decline in bad debt expense and reserve balances that are functionally unchanged versus the prior year,” Adam Samuelson, analyst at Goldman Sachs, said in a Sept. 10 report. “With the recent decline in selling crop prices and the concurrent pressure on farmer incomes, it comes at no surprise that farmer credit conditions are deteriorating.”
Goldman’s analysis includes a comparison with the lending unit at John Deere (DE), the maker of farm equipment and heavy machinery. John Deere Capital Corp has a longer history of financial data showing the relationship between write-downs and delinquencies in its revolving charge accounts. By comparison, Nutrien first reported the results for (NTR) Nutrien Financial four years ago.
Recent trends for Nutrien Financial are worrisome, according to Goldman.
“While sales have been lower year over year the past few quarters, receivable balances have actually increased,” Goldman’s report said. “This implies lending activity has actually accelerated and Nutrien (NTR) has increased penetration of lending within its customer base to finance input purchases.”
Goldman cut its price target on Nutrien (NTR) to $53 a share from $69 a share previously, based on a sum-of-the-parts valuation with an estimated enterprise value that’s seven times earnings before interest, taxes, depreciation and amortization.
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