Freedom Broker is first on Wall St. to issue 'buy' on U.S. potash producer Intrepid

Freedom Broker has become the first Wall Street house to rate Intrepid Potash, a small-cap company that is the only U.S. producer of muriate of potash, a "buy." The market is focusing on commodity cyclicality while underestimating other factors, including the company’s potash production technology, Freedom Broker argues.

Freedom Broker initiated coverage of Intrepid with a “buy” rating, according to a note reviewed by Oninvest. The firm set a target price of $45 per share, meaning almost 33% upside to the $34 per share closing price on Friday. 

The valuation is based on an enterprise value/forecast 2027 EBITDA multiple of 6.8 (recall that enterprise value, unlike market capitalization, also accounts for a company’s debt and cash), above the 5.3 multiple for Intrepid’s peers, Freedom Broker noted.

In assessing Intrepid’s prospects, the market is focusing on commodity cyclicality and the company’s short post-2016 track record while underweighting structural sources of value, Freedom Broker wrote.

Intrepid is the only U.S. producer of muriate of potash, the world’s most widely used potash fertilizer. It is also one of two U.S. producers of a specialty fertilizer made from the rare mineral langbeinite, or potassium magnesium sulfate. Another potential catalyst for Intrepid shares is its potash production technology: the company uses solar evaporation, giving it low unit costs, the analysts wrote. Most of its competitors primarily extract potash from deep underground mines.

Freedom Broker also drew ’ attention to the company’s balance sheet. In April, Intrepid sold most of its Intrepid South Ranch assets, including land and water rights used by the oil and gas industry, to HydroSource Logistics for $70 million. The fertilizer producer described the assets as noncore and stated that the sale would allow it to focus on its core business.

The risks to Intrepid’s business include the resumption of supplies from companies currently under U.S. sanctions and changes in trade policy, including tariffs, according to Freedom Broker.

Intrepid shares are up 23% year to date. Besides Freedom Broker, two other analysts cover Intrepid, both with “sell” ratings on the stock. Their average target price of $35 per share is 2% above the latest closing price.