Lehman Brothers analyst Joseph Wolf has raised his target price on Israel Chemicals Ltd. (TASE: ICL) to NIS 100 from NIS 95, and maintained his "Overweight" rating on the stock.
Wolf notes that despite a recent strong run in its share price, Israel Chemicals remains Lehman's top pick in Israel.
Two reasons for the upgrade in target price are a recalculation of Lehman's estimate of Israel Chemicals' operating margin (in a recent review, Lehman found a mistake in its calculation), and a higher potash price assumption. Half of its upgrade in the earning per share estimate is from the correction and half from higher pricing assumptions.
Wolf notes that he has boosted his average price assumption for potash to $875 per tonne (up from $800 per tonne) for 2009 and to $1,000 per tonne (up from $900 per tonne) in 2010. Lehman expects that the effect of the changes will boost earnings per share in 2009 to $2.50 from $2.11 and to $3.00 from $2.56 in 2010.
Among items that Lehman sees to support its bullish view are German firm K+S's statement on June 19 that it does not believe potash pricing has peaked, and the estimate that K+S is closing on prices for specialty potash in the third quarter at over $825 per tonne. Wolf also notes that inventories for North American potash producers declined in May, and that Russian firm BPC sold a large volume of potash to Brazil at $1,000 per tonne for August.
Israel Chemicals has risen over 64% so far in 2008, compared with a decline of 8.4% for the Tel Aviv 25 index. Since June 10, ICL is up 10.5% compared with a 1.5% gain for the Tel Aviv 25 index. Nonetheless, the Lehman analyst does not feel it is too late to get into the stock, noting that the worry could have been stated since 2004.
Shares in Israel Chemicals are down 2.7% in Tel Aviv Stock Exchange (TASE) trading, reaching NIS 77.65.
Published by Globes [online], Israel business news - www.globes-online.com - on June 25, 2008
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