Dahlman Rose Cautious On Intrepid Potash Following Recent Earnings

Last week, Intrepid Potash's IPI results beat forecasts due mostly to higher volumes as customers bought ahead of planned price hikes. While fundamentals have improved, we do not see IPI fully participating in this uptrend until 1Q11 given its lack of compaction capability. Dahlman Rose maintains its Sell rating on relative valuation. Given the improved pricing environment, management expects to accelerate some of its capital investments to increase their product output heading into 2011. Dahlman has maintained its 2011 potash and Trio sales volume expectations at ~830 Kmt and ~245 Kmt, respectively but has increased its net realized price expectations. Dahlman has increased 2011 potash and Trio average realized price by $42/ton and $25/ton to $431/ton and $201/ton. Given the 3Q10 beat and Dahlman's revised 4Q10 expectations, it has raised FY10 estimates to $0.49. Dahlman's 4Q10 earnings increased marginally to $0.13 driven by better pricing that is partially offset by higher cost. Dahlman has also adjusted its FY11 earnings estimate to $1.18 given an improved pricing environment, but we are staying below current consensus estimate of $1.42. Based on revised estimates, IPI shares trade at 2011 P/E and EV/EBITDA of ~28x and ~13x, a premium to its peer group average of ~16x and ~10x, respectively. IPI is trading lower at $32.19