Is it a buy? Jefferies tips 25% upside for the Incitec Pivot (ASX:IPL) share price

Here’s what the experts have to say.

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Shares in chemicals and fertilisers giant Incitec Pivot Ltd (ASX: IPL) are edging higher on thinly traded volume today and are less than 2% in the green at $3.23.

Incitec Pivot has gathered steady support since mid-June and shares have broken through key resistance levels more than three times in that period to date, including advancing to new 52-week highs.

Plus with critical supply shortages of the chemical neutraliser AdBlu keeping Incitec Pivot in the spotlight, investors have thrust the company’s share price from a closing low of $2.97 since the beginning of December. So with that in mind, is it a buy? Here’s what the experts have to say.

What’s going on with Incitec Pivot lately?

The wide-ranging price action seen on Incitec Pivot’s chart has come amid a few key updates in its growth narrative going into 2022.

Firstly, the company announced the closure of its Gibbon Island manufacturing operations effective December 2022. This is the date when current natural gas feedstock supply arrangements expire.

The Gibbon Island facility will be closed after more than 50 years of operation and around 170 employees will have to be reassigned.

One-off costs to close the plant include an $83.5 million cash impairment to close the facility and a $102.5 million asset depreciation.

The company also announced strengths in its full year results in November to which investors reacted positively, paring some of the losses incurred in previous sessions.

In the presentation, Incitec advised it had grown revenue 10% to $4.35 billion and saw a 91% rebound in net profit after tax (NPAT) to $209 million.

After some short-term turbulence, shares are now trading back in line with the longer-term bullish momentum and are heading back towards 52-week highs.

Is Incitec Pivot a buy right now?

Analysts at investment bank Jefferies certainly think so. The firm recently hammered down its conviction in a note to clients as well, noting that the $6 billion Incitec’s earnings outlook has likely been improved thanks to the recent spike in ammonia prices.

Jefferies notes that Incitec’s average ammonia price for Q1 FY22 has lagged the key benchmark by around 1 month and that the current average is presently around $110–$700 tonne higher than the broker’s internal ammonia price estimates for FY22.

This dislocation in Jefferies’ ammonia forecasts and Incitec’s performance could bode in well for the fertiliser giant, particularly to its operating cash flows.

If this current average is held throughout FY22, “this would deliver incremental EBIT of $200 million” the investment bank reckons.

With its projections, Jefferies values Incitec at $4 per share and advocates a buy in its recommendation on the stock.

Jefferies is joined by fellow brokers Morgan Stanley, Macquarie and Morgans, who each value Incitec Pivot at $4.30, $3.56 and $3.75 respectively.

In fact, in a list of analysts provided by Bloomberg Intelligence, 58% of the coverage advocates Incitec Pivot as a buy, whereas there is just 1 firm that says it is a strong sell, being Sadif Investment Analytics.

The spread of price targets ranges from $4.30 at the top to a bottom of $2.70, whereas the consensus price target sits at $3.51. At the time of writing, this implies an upside target of around 8%.

The Incitec Pivot share price has climbed 41% in the last 12 months after climbing another 42% this year to date.

Should you invest $1,000 in Incitec Pivot right now?

Before you consider Incitec Pivot, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Incitec Pivot wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

The author has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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