The Nufarm Limited (ASX: NUF) share price has been one of the best performers on the ASX 200 on Monday.
At one stage the crop protection and specialist seeds company's shares were as much as 10.5% higher. They have since given back some of these gains but still sit 7% higher at $5.37.
Why is the Nufarm share price surging higher?
There are a couple of potential catalysts for this impressive share price performance.
The first is a broker note out of Deutsche Bank this morning. According to the note, its analysts have upgraded Nufarm's shares to a buy rating from hold and have a $6.00 price target on them.
Deutsche made the move largely on valuation grounds after the company's shares sank to a multi-year low on Friday. In the note the broker points out that its shares are trading at a significant discount to both historical averages and its peers.
Another potential catalyst is speculation that Wesfarmers Ltd (ASX: WES) could be interested in launching a takeover of Nufarm.
The conglomerate is believed to have been wanting to purchase something in the chemicals space for some time to complement its other businesses. Incitec Pivot Ltd (ASX: IPL) has generally been regarded as the best option, but The Australian is reporting that Nufarm could now be the preferred option due to its current valuation.
It low valuation means it would be "a low-risk way for Wesfarmers to secure a foothold offshore, offering new earnings growth opportunities."
What now?
I think a takeover by Wesfarmers would make a lot of sense, but I wouldn't buy its shares purely in hope that an offer is made. If you're happy to hold its shares for the long term then it could be a good option due to its current valuation, and if a takeover approach is made in the meantime then it will be an added bonus.
