Despite record earnings that beat consensus estimates and strong performances from each of its potash, nitrogen and phosphate segments, shares of Potash Corp. of Saskatchewan declined roughly 3% on Thursday. The company also raised its 2008 earnings per share (EPS) guidance from $9.50-$10.50 to $12.00-$13.00 and saw cash flow per share (CFPS) climb more than 130% from the second quarter last year.

However, the threat of a possible strike at three of Potash Corp.’s mines appears to be causing concern. The company has provided its “best and final offer” but without a settlement, a strike may begin on Friday.

UBS analyst Brian MacArthur maintained his “buy” rating on Potash Corp. shares, but cut his price target to US$308 from US$320 as a result of uncertainty related to the labour dispute. This was done by applying a price-to-cash flow multiple of 11.5 times to his 2009 CFPS estimate of $24.23, down from 12x previously.

RBC Capital Markets analyst Fai Lee remains far more bullish however, maintaining an “outperform” rating and US$375 price target, which represents upside of more than 90%.

Putting aside the possibility of short-term volatility for Potash Corp. shares, he told clients the recent weakness presents an excellent buying opportunity for those with a long-term outlook. The analyst cited its price-to-earnings multiple of 8.9 times and estimated cash flow of US$7.3-billion, or US$24.13 per share, for 2009.

Mr. Lee also said the market is ignoring the company’s future potash expansion projects that could add as much as US$95 per share in value.

His EPS estimates for 2008 and 2009 climb from US$12.26 and US$21.33 to US$12.54 and US$21.81, respectively, which is primarily a result of a higher assumed share buyback program.

Jonathan Ratner