Potash (POT) and Agrium (AGU)

When POT reported 4Q09 earnings, they significantly guided down for FY2010 earnings from $5.9 to $4.5.  That was on Jan 28.  The stock fell off a cliff from $126 to $100 over 3 weeks.  I was playing with Feb 105/110 bull put spread that went in the money and I ended up closing at 35% loss.  


Just now after hours POT revised guidance higher for Q1 from 70c-$1.00 to $1.30-$1.50.  When you extrapolate the numbers for full year, they're practically guiding the same EPS of $5.9 that they were originally expecting to earn before they guided lower on Jan 28.  


What kind of crappy PR is that by management?  They were extremely bearish 6 weeks ago and now they're extremely bullish on the outlook.  In textbook finance, this kind of unpredictable earnings pattern deserves lower PE ratios, but I doubt traders will care about that.  


POT is trading sharply higher after hours at $125, just shy of 52-week high.  This is bound to catch some upgrades tomorrow and I believe the whole Ag sector will start a new leg up.  I should've seen this coming because just two days ago Citigroup announced that a competitor called Canopotex increased potash prices to $415/tonne which is 12% higher than what POT charged an Indian customer in Feb.  


Additionally, Credit Suisse hosted a dinner with POT's CFO Wayne Brownlee late Feb.  Here is an excerpt from CS report on Feb 26:


"POT has seen improving demand in several regions. In North America, January sales were at 15-year highs as buyers quickly returned to the market upon settlement of the BPC/Chinese contract. February sales have moderated from the January rates but are still solid and buyers have accepted the $30/t higher price levels. In Brazil, distributor restocking has driven solid volumes in 1Q, ahead of the seasonally stronger 2Q and 3Q periods. Demand has also picked up in Malaysia and Indonesia."


Bottom line is the stock is ready to pop and take out $126 which is previous 52-week high.  My near-term target is $140.  Depending on where it opens tomorrow, I'll be doing one of the following: 


1) Buy April 125/135 or 130/140 call spread, or 
2) Sell April 115/120 bull put spread, or 
3) Buy April 125/130 call ratio spread


Not sure yet, but I'll let readers know when I fill the order.  

Separately, Agrium (AGU) is getting double dose of good news after hours.  One obviously from POT on improving fertilizer prices, and secondly AGU announced they're withdrawing their offer to buy CF Industries, as CF overbid Yara Industries to buy TRA.  Yeah, its a big tango web, but its lifting AGU shares as it releases the hangover of potential CF acquisition.  


AGU is up $4 after hours and is poised to take out 52-week high tomorrow.  Again, depending on where the stock opens, I'll be doing one of similar trades as highlighted for POT.  I think AGU goes to $80.  


Still pissed though about POT guiding lower and six weeks later guiding higher.  


Good luck!