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Investment Strategy
What is the goal of the Tortoise Portfolio? The Tortoise Portfolio aims to outperform the S&P 500 index over time. Companies in this portfolio tend to be mature, relatively slow-growing, and with moderate to low risk. New purchases must have an economic moat, preferably wide. We attempt to tilt the portfolio toward companies with at least stable competitive advantages (stable moat trends).

What is the goal of the Hare Portfolio? The Hare Portfolio aims to outperform the S&P 500 index over time. Companies in this portfolio tend to be faster-growing, with both higher risk and higher return potential than those in the Tortoise. New purchases must have an economic moat, preferably wide. We attempt to tilt the portfolio toward companies with growing competitive advantages (positive moat trends).

Investment Strategy
Morningstar StockInvestor invests in companies with established competitive advantages and generous free cash flows, trading at discounts to their intrinsic values. These are core holdings, with more conservative ideas appearing in the Tortoise Portfolio and more aggressive ideas in the Hare Portfolio. We expect both portfolios to beat broad U.S. stock index benchmarks, such as the S&P 500, over rolling three-year periods.
About the Editor
As editor of Morningstar's StockInvestor newsletter, Matthew Coffina manages the publication's two real-money, market-beating model portfolios — the Tortoise and the Hare. Matt was previously a senior healthcare analyst, covering managed care and pharmaceutical services companies. Matt also developed the discounted cash flow model used by Morningstar analysts to assign fair value estimates to most of the companies in its global coverage universe.

Matt joined Morningstar in 2007. He holds a bachelor's degree in economics from Oberlin College and also holds the Chartered Financial Analyst (CFA) designation.

 
Aug 01, 2015
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Matthew Coffina, CFA
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Morningstar StockInvestor
As editor of Morningstar's StockInvestor newsletter, Matthew Coffina manages the publication's two real-money, market-beating model portfolios -- the Tortoise and the Hare. Matt was previously a senior healthcare analyst, covering managed care and
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Roundup, 7/31/15 -- Earnings Season Continues with Mixed Results

I discussed Baidu's BIDU second-quarter earnings in a separate alert on Tuesday. I continued to dig into the results throughout the week, and I'm increasingly convinced that Baidu is attractive at the current price. Based on the company's disclosures about its investment spending, I estimate that Baidu's core search business will earn more than $10 per share this year. So even if the online travel, online video, and "online-to-offline" initiatives had zero value--unlikely, considering the relatively high valuations assigned to close peers--Baidu's search business would be trading at a mid- to high-teens price/earnings multiple on its own. That's as cheap as Baidu has been since our initial purchase, and I'm thinking about adding to our position.

Aside from Baidu, we received reports from nine other holdings this week. General Dynamics GD delivered another excellent performance, with revenue up more than 5% and earnings per share up nearly 21%. The strong start to the year prompted management to raise its 2015 earnings per share guidance to $8.75 at the midpoint, an 8% increase. With the defense spending cycle finally turning in General Dynamics' favor, plus a strong backlog, balance sheet, and management team, I see the stock as a core long-term holding.

Enterprise Products Partners EPD showed resilience in the face of severe commodity price headwinds. Distributable cash flow per unit was down just 3% year over year as midstream assets entering service helped to offset new unit issuances and lower commodity margins. With the distribution up 5.6% since last year, Enterprise's distribution coverage ratio dipped to 1.3. Even so, Enterprise has a very comfortable cushion of excess distribution coverage relative to most master limited partnerships--a margin of safety that was built up by Enterprise's conservative management for just such an occasion. We trimmed our fair value estimate by $2 per unit to $36 to incorporate current energy prices. The midstream energy sector is out of favor with investors, and most of these stocks are down sharply in the past few months. I think investors have legitimate cause for concern with several midstream firms, particularly those that have aggressive financing, lower-quality assets, or insufficient distribution coverage. In this environment, I'm glad we own what I consider to be the two highest-quality and most conservative partnerships: Enterprise and Magellan Midstream Partners MMP.

It was business as usual at ITC Holdings ITC in the second quarter. Operating earnings per share advanced 13% as the company continued to invest in regulated electricity transmission infrastructure. The ongoing regulatory review of ITC's allowed returns on equity remains the main overhang for the stock. We expect a decision sometime in mid-2016. In the meantime, our $42 fair value estimate depends on regulators following precedents and being generally supportive of transmission investment; we forecast a manageable 130-basis-point cut to ITC's average allowed ROE. I plan to hold.

Our original investment thesis for National Oilwell Varco NOV is crumbling amid lower oil prices, and holding the stock until now has undoubtedly been one of my biggest mistakes. My only consolation is that NOV is the Hare's sole energy holding, its weighting has fallen to an almost immaterial 2.5%, and the experience has provided an expensive but valuable lesson: Never mistake a cyclical upturn for a secular growth trend. NOV's second-quarter revenue and earnings per share declined 26% and 48%, respectively. The book/bill ratio in the rig systems segment came in at a pitiful 0.18. Earnings will likely deteriorate further in the coming quarters as the company works through its remaining backlog. Worse, we cut our fair value estimate by another $18 per share--to $48 from $66--reflecting our view that incremental low-cost oil supply from U.S. shale plays is crowding out deepwater drilling. I'm hesitant to sell NOV at a cyclical trough, but I also don't want to be stuck for years waiting for a recovery in rig equipment demand that may never come. NOV is a possible source of funds.

We can't read much into Compass Minerals' CMP results, considering this is the seasonally weakest quarter of the year and the company faced an easy prior-year comparison. However, Compass seems to be on track for a decent winter. With the 2015-16 bid season largely complete, highway deicing salt prices are down about 6%, but that follows a 25% jump in prices last year. The step back in prices is offset by a 10% increase in committed salt volumes and expectations for margin expansion as the company invests in efficiency improvements. The fertilizer segment remains fairly steady, with sulfate of potash prices holding well above our long-run forecast for now. We raised our fair value estimate to $95 from $94, and since Compass looks like one of the better values in the Hare, I consider it a possible destination for new money.

MasterCard's MA second-quarter results were clouded by adverse foreign exchange movements, higher rebates and incentives tied to new customer contracts, litigation costs, and expenses related to acquisitions. However, the company's underlying growth drivers appear healthy, including a 13% increase in currency-neutral gross dollar volume. While operating income rose only slightly adjusted for currency, earnings per share advanced 15%, mostly thanks to a lower tax rate and share repurchases. We increased our fair value estimate to $106 from $104 to account for cash earned since our last update, and MasterCard remains a core holding.

CME Group CME is firing on all cylinders, with revenue and earnings per share up 12% and 23%, respectively. Uncertainty about the direction of interest rates, foreign exchange rates, and commodity prices is driving derivatives trading volumes, while CME's leverageable business model and shareholder-friendly management are keeping a tight lid on expenses. Pretty much my only complaint about CME is that the stock hasn't traded at a material discount to our fair value estimate in years; I would jump at the chance to add to our position with an acceptable margin of safety.

PotashCorp POT continues to confront unfavorable industry conditions, including weak nitrogen prices and a shortened North American planting season. As a result, second-quarter earnings per share declined 11%, and the company trimmed the high end of its full-year EPS outlook by a dime. Management also reiterated its interest in acquiring German potash and salt miner K+S, while trying to reassure K+S that it doesn't intend to cut jobs, close mines, or divest assets. If that's true, it would make it even harder to justify the proposed EUR 41 purchase price, which is a steep premium to our EUR 24 fair value estimate for no-moat K+S. We lowered our fair value estimate for PotashCorp to $40 from $41, though the stock still carries one of the lowest price/fair value ratios in the Hare at 0.68. I plan to hold, but management's questionable dealmaking and the company's sensitivity to commodity prices prevent me from adding to our position at this time.

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Lastly, Express Scripts ESRX reported good second-quarter results and management bumped up its outlook for full-year adjusted earnings per share growth to 12%-14%. Express Scripts lost clients in each of the past few selling seasons as it struggled to integrate the Medco business it acquired in 2012. With all of Medco's clients having now completed at least one renewal cycle, I had come to view 2016 as a make-or-break year for our investment thesis. Fortunately, the 2016 selling season appears to be going well. Management forecast a 95%-97% client retention rate, which is consistent with historical norms. Now that the integration issues are behind it, Express Scripts can focus on attracting new clients, driving down drug costs, and finding other ways to enhance margins such as through increased mail-order penetration and managing specialty drug spending. Capital returns are also a major part of the Express Scripts story, with an accelerated share repurchase program reducing the share count by more than 11% year over year.

Express Scripts' total prescription volumes are still expected to fall slightly next year, but this is entirely due to Aetna's AET 2013 acquisition of Coventry, which had been an Express Scripts client. On that front, there's been a major wave of consolidation in the managed care industry recently, with Aetna agreeing to buy Humana HUM and Anthem ANTM attempting a merger with Cigna CI. Anthem is Express Scripts' largest client, accounting for 14% of 2014 revenue. There have been persistent rumors that Anthem wants to renegotiate its contract, which runs through 2019, to get more favorable terms from Express Scripts.

While this is a risk, I see at least as much upside as downside for Express Scripts resulting from the managed care M&A boom. First, Anthem's management will be distracted over the next few years by a long and complex regulatory review of its Cigna deal, and then if the transaction is approved, by integrating these two large companies and trying to keep clients happy. It seems unlikely that Anthem would want to take on the additional disruption of changing pharmacy benefit managers.

Second, Anthem may not have a lot of alternatives to Express Scripts. Cigna has a long-term PBM contract with Catamaran that runs through the early 2020s. However, Catamaran was recently acquired by UnitedHealth UNH, and I doubt that Anthem will want to depend on one of its biggest competitors for such an important service over the long run. So Express Scripts could eventually win the Cigna business as well, though probably not any time soon. The only other pharmacy benefit manager with the resources to handle such a large account is CVS Health CVS, but CVS has a close relationship with Aetna.

Third, it would also be challenging for Anthem to try to insource its pharmacy benefit management again, having sold its former operation to Express Scripts in 2009. This might have been a greater concern if Anthem had ended up acquiring Humana instead of Cigna, since Humana comes with an internal PBM. The only other option I can imagine would be a potential partnership with Prime Therapeutics, which is a smaller private PBM jointly owned by 13 nonprofit Blue Cross and Blue Shield plans (Anthem's major subsidiaries are also BCBS plans). However, Express Scripts is more than four times the size of Prime, which should give it significantly greater bargaining power with drugmakers.

I'll be interested to see how all this unfolds. In the meantime, I still think Express Scripts is undervalued, trading at a 10% discount to our $100 fair value estimate and for around 16 times current-year earnings.

Regards,

Matt Coffina, CFA
Editor, Morningstar StockInvestor

Email: matthew.coffina@morningstar.com

Disclosure: I own all of the stocks in the Tortoise and Hare in my personal portfolio.

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Morningstar Stock Analyst Notes

Enterprise Products Partners EPD  |  Peggy Connerty

We are maintaining Enterprise Products Partners' wide moat rating but lowering our fair value estimate slightly to $36 from $38. The decrease reflects the current quarter’s results along with our expectation of continued lower commodity prices. Enterprise reported second-quarter adjusted EBITDA of $1.296 billion, up 3.8% versus last year but below consensus estimates; distributable cash flow was up 3.5% to $988 million for the quarter versus last year’s $954 million. Excluding proceeds from asset sales and insurance recoveries, distributable cash flow was up 5% versus last year. Management raised the distribution by 5.6% in the quarter to $0.38 per share and had healthy coverage of 1.3 times on the distribution. Management said it retained $238 million in distributable cash flow, which will offset future capital expenditures. Shares of Enterprise have traded off approximately 12% this past quarter as interest-rate chatter and further commodity price declines, particularly for natural gas liquids, have caused a large sell-off in master limited partnerships across the board. However, there are vast differences among MLPs, and we view Enterprise as a premium name in this sector. Its current price is an attractive entry point.

Enterprise is one of the best management teams in the MLP/midstream sector. It's been through the boom and bust periods in energy and has grown its business along the way. While there’s no question that the current operating environment is tough, Enterprise is managing through it. We expect it to continue allocating capital prudently and saw this in action during the quarter as the business sold noncore offshore assets and purchased gathering and processing assets in the Eagle Ford, where it already has a stronghold and can thus integrate the assets and drive volumes through its system. As always, Enterprise retained a large chunk of distributable cash flow to offset future capital expenditure needs; year to date it has retained $532 million.

In terms of the business segments, lower NGL prices during the quarter negatively affected Enterprise's NGL pipeline and services segment, which was down 4%. In terms of individual segment results, strong growth was registered in the crude oil pipeline and services (up 28%), petrochemical and refined product services (12%), and offshore pipeline and services (31%) segments but was partially offset by declines in the NGL pipelines and services segment and the onshore natural gas pipeline and services segment (down 6%). Key factors helping the quarter were the Oiltanking acquisition, the expansion of the Seaway crude oil pipeline, and lower operating expenses.

Management completed $300 million in capital expenditure projects during the first half of 2015 and expects to complete an additional $2.4 billion by the end of 2015. Included are the LPG export facility and the remaining phases of the Aegis ethane header system. Available liquidity is $5.6 billion, or $6.0 billion after adjusting for the sale of offshore assets to Genesis and the purchase of assets in Eagle Ford from Pioneer.

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ITC Holdings ITC  |  Charles Fishman, CFA

We are reaffirming our wide economic moat, stable moat trend rating, and $42 fair value estimate after ITC Holdings reported solid second-quarter earnings and reaffirmed its 2015 earnings and capital expenditure guidance. Our 2015 earnings per share estimate of $2.08 is at the midpoint of management's $2.00-$2.15 guidance and is unchanged.

Second-quarter operating earnings were $0.52 per share versus $0.46 per share in 2014. The increase over the prior period was largely attributable to higher income associated with an increased rate base.

Operating earnings exclude a $0.06 per share reserve for a potential refund because of the Midcontinent Independent System Operator base return on equity rate case. We believe a refund is likely and reiterate our assumption of a 130-basis-point decline in average allowed ROE across ITC's entire system included in our forecasts and fair value estimate. We expect a final decision in the MISO case in mid-2016, although there is no stipulated period for the Federal Energy Regulatory Commission to issue a final decision.

We expect management to discuss the progress of the Lake Erie Connector project during its earnings call later today. However, since the solicitation process is ongoing, we do not expect any material new information. ITC reported that it completed the Thumb Loop project ahead of schedule and under budget. One of the purposes of this project is to allow wind farms in lower Michigan access to the high-voltage electric grid, bringing this renewable energy to customers.

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National Oilwell Varco NOV  |  Stephen Simko, CFA

We are reducing our National Oilwell Varco fair value estimate to $48 per share from $66.

Given our outlook that U.S. tight oil will continue to be the major source of incremental oil supply growth through the end of the decade, we believe higher-priced barrels such as new deep-water projects will effectively be crowded out. This is leading to major headwinds for NOV, and we are further reducing our forecasts for the firm's Rig Systems segment, where we expect revenue to decline at 11% a year through 2019, to roughly half of 2014 levels.

Our updated forecasts call for NOV's EBITDA to fall from $4.4 billion in 2014 to $2.7 billion in 2015 and $2.1 billion in 2016. We do expect its fortunes will recover from there, albeit slowly, with EBITDA reaching roughly $3 billion in 2019.

Our valuation implies a forward 2015 price/earnings multiple of 16 times and a forward 2015 enterprise value/EBITDA multiple of 7 times. Both are higher than typical for NOV, on account of our expectations for an austere 2015 from an earnings perspective. Nonetheless, should investors look beyond 2015 and trough earnings, we see an eventual return to more normalized financial performance.

NOV reported results for the second quarter on Tuesday, including a 19% decline in revenue, an operating margin that contracted by 280 basis points to 11.6%. NOV's Rig Systems segment surprised to the upside, posting an operating profit margin that improved by 120 basis points to 20.5%, notwithstanding a 24% sequential decline in segment revenues. More important, segment backlog continued to decline in response to deteriorating market conditions, falling 13% from the previous quarter and 41% from the prior year to $9.0 billion.

We model rig systems' contribution to total operating income to peak this year at 70% and decline to around 10% by 2019. Our forecast calls for book/bill to remain below 1 times though 2018, with backlog dropping to $2.7 billion at the trough. We don't see robust growth once this segment recovers, as we expect the market to remain well supplied with recently built high-spec rigs. Opportunities with FPSOs and rig equipment components are likely to drive growth in this segment for the foreseeable future.

In our view, rig aftermarket will see the shallowest decline and quickest rebound, as existing rig fleets still require maintenance and stacked rigs will require considerable servicing before re-entering service. We expect industry-average recovery and growth from wellbore technologies and completion and production solutions.

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Compass Minerals CMP  |   Jeffrey Stafford, CFA

We're raising our fair value estimate for Compass Minerals to $95 per share from $94 following the release of the company's second-quarter results. Compass reported a solid quarter with adjusted EBITDA up 34% compared with the prior-year period. Our wide moat rating remains unchanged.

Salt volumes declined 4.5% year over year, but pricing gained 2.6% amid a 14% increase in highway deicing prices and nearly 4% gain in consumer and industrial prices. More importantly, the company is on track for the upcoming winter season. Management expects 2015/16 committed volumes will be the highest in company history. Committed volumes are currently up 10% versus the prior year and up 14% versus the 10-year average with the bid season 80% complete. Average awarded prices in North America have come in 6% lower thus far, but this follows a 25% increase from the season before. We remain comfortable with our near-term pricing assumptions. Compass looks to have made up for pricing pressure by taking volume share as competitors shifted tons to the East Coast in response to stronger winter there than the Midwest in 2014/15. We're encouraged by Compass' outlook for the winter season, given worries that previously reported bid volumes and prices at the municipality and state level had been weaker than expected.

Salt costs declined year over year, and we think salt costs will see little inflation over the coming years as a result of mining improvements—--management has a 2018 target to reduce per-unit cash costs by 20% before inflation.

Results in the specialty fertilizer business continued to outpace our expectations. In our view, the spread between MOP and SOP prices remains at an unsustainable level. Our view is that SOP prices will eventually sink closer to marginal costs of production, which are based on MOP prices. If the MOP/SOP spread remains high we would expect current MOP producers to spend capital to upgrade plants, giving them the ability to produce SOP.

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Express Scripts ESRX  |  Vishnu Lekraj

From our perspective, Express Scripts will be a dominant player within the health care sector over the next several years and the firm’s performance over the second quarter reinforces our outlook. We believe the confluence of materially improving profits, increased 2015 guidance, and a higher forecast 2016 client retention rate serves to highlight our positive outlook for the PBM. The firm has also clearly recovered from its Medco integration issues and we are impressed with the job Tim Wentworth, Express’ president and operations head, has done in turning the firm’s sales and services operations around. After factoring in these second quarter developments we are reiterating our $100 fair value estimate.

While Express’ stock no longer trades at a significant discount to our fair value estimate, we believe there remains some room for the firm’s share price to move higher. Considering its client retention and EPS guidance, Express is positioned to perform well over the course of 2016, which should translate into a market price closer to our $100 fair value. The PBM increased its 2015 EPS guidance to $5.46-$5.54 from $5.37-$5.47, which was driven by a materially better profit outlook for the rest of the year. More significantly however, the firm raised the lower end of its client retention rate range to 95%-97% from 94%-97%. We believe the raised retention midpoint is a highly positive sign and clearly points to improved sales and marketing execution.

One major overhang for Express is its contract with Anthem. The MCO has been vocal with its intention to renegotiate the economics of the current 10-year deal and the unresolved nature of this issue has given some market participants pause with regard to the Express’ equity. Management has given very little detail of its thoughts on the matter, but we believe this headwind is not as strong as it may initially seem. From our perspective there is little incentive for Anthem to switch PBM providers and its ability to extract an exorbitant level of economics from a new agreement is limited. Express’ 2009 acquisition of Anthem’s NextRx PBM assets creates a moderate level of stickiness in the relationship. Additionally, the only other PBM with the infrastructure to service such a sophisticated contract is CVS Health, which limits Anthem’s vendor choices. Additionally, Anthem's ability to rebuild its internal PBM capabilities through the acquisition of Humana is now off the table given the announcement of an Aetna/Humana tie-up and Anthem’s just announced deal with Cigna. Anthem will most likely gain some concessions during the upcoming contract extension negotiations, but these concessions will not be significantly detrimental to Express, in our opinion.

All metrics on a per-adjusted-claim basis improved nicely during the quarter with revenue increasing 2.4%, gross profit rising a solid 7.2%, and adjusted EBITDA up a decent 4.5%. The firm was also able to increase its generic fill rate by 160 basis points to 85.50%. The upward movement of these metrics is a positive development and will ultimately drive value growth for investors.

We believe Express’ outlook remains on a positive trajectory and the operational stabilization over the the first half of 2015 highlights this dynamic. As we have stated previously, we strongly believe the firm’s command of the pharmaceutical supply chain is unparalleled given its 30% market share and gives it stalwart competitive advantages.

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MasterCard MA  |  Jim Sinegal

MasterCard's second-quarter results, though hurt by currency movements and litigation expenses, are reflective of the strong underlying growth trends powering the wide-moat company's performance. We are raising our fair value estimate slightly to $106 per share based mainly on the time value of money since our last update.

MasterCard processed just over 12 billion transactions during the quarter, a 13% increase from the prior year's performance. On a local currency basis, dollar volume followed suit, but currency effects offset much of the core growth. We don't see any reason to alter our long-term view as a result.

On the expense front, core spending expanded only 4% on a currency-adjusted basis and when acquisitions are excluded. Though acquisitions added significantly to spending--a full 10% more annual growth--we don't see this as a bad thing, as MasterCard's expenditures on M&A have not been unreasonable, in our view.

The company repurchased $1.8 billion worth of shares in the first six months of the year, reflecting management's commitment to return capital to shareholders. However, MasterCard also spend $609 million in cash on acquisitions--primarily its purchase of Applied Predictive Technologies, which is intended to capitalize on MasterCard's access to voluminous customer data. We like the company's efforts to leverage its payment capabilities into additional data and analytics services for both issuers and merchants.

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CME Group CME  |  Michael Wong, CFA, CPA

Heightened macro uncertainties and a tight rein on expenses will lead to strong near-term earnings, while secular trends ensure continued long-term growth. CME Group reported another strong quarter with adjusted net income of $320 million, or $0.95 per diluted share, an increase of 24% from the previous year. Sequentially, revenue decreased 3%, due to the first quarter being an exceptionally high bar with it being the second-highest revenue quarter ever. Additionally, the second quarter had a slow start with average daily volume of 11.5 million contracts in April, but an average of 14.3 million across May and June. We don’t anticipate making a material change to our $96 fair value estimate for wide-moat CME Group.

The currently high trading volumes and earnings still have room to grow amidst the prospect of rising U.S. interest rates and continuing uncertainty in economic growth across the globe. Rising U.S. interest rates should keep rate trading volumes elevated, and we believe it has the potential to spur equity trading volumes if rising rates shock the U.S. equity market. Differing views on real economic growth and related demand and supply of commodities should be conducive to trading in CME’s commodities and currency franchises. Underneath the revenue growth is management’s focus on costs. 2015 quarterly expenses are flat compared with 2014 and 2013, despite the average quarterly revenue being up 7% and 13%, respectively. This expense management has led to operating margins expanding to 60% from an average of 56% the two preceding years.

While the macro environment and volatility may settle down in the next two years, there are still secular growth drivers for CME Group. The more material drivers will likely be increased trading by international clients of CME’s globally relevant commodity products and the electronic trading of options.

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PotashCorp POT  |  Jeffrey Stafford, CFA

PotashCorp's second-quarter performance was in line with our expectations. Potash volumes were more or less flat year over year, as a sizable uptick in tons shipped to offshore markets offset weaker North American results. Industry shipments to China and India have been strong through the first half of the year, but the shortened planting season in the U.S. and more competition from offshore competitors have held back PotashCorp's North American volumes. We still expect the company to sell 9.5 million metric tons of potash in 2015.

The company's potash selling price advanced 3.8% year over year to $273/t, but was down sequentially from $284/t in the first quarter. The sequential decline looks to be a mix effect as more tons were sold to lower-netback offshore customers. That said, potash prices in North America have slid more recently and PotashCorp is likely to see some additional pricing pressure in the back half of the year.

PotashCorp continues to perform well on the cost side. For the third quarter in a row, the company held potash cash costs below $85/t. Cash costs per ton were down 6.9% year over year. The company is tracking below our unit cost expectations so far this year. All told, potash gross profit rose 5.6% compared with the year-ago period.

Despite the respectable potash results, we're slightly reducing our fair value estimate to $40 per share from $41. We've brought down our phosphate volume forecast to reflect weaker-than-anticipated production following the closing the of the company's Suwannee River facility. Furthermore, we've slightly pulled back our medium-term potash volume forecast. As noted, PotashCorp is experiencing a more competitive market in North America with offshore imports having increased. As such, our previous volume forecast for the next couple years now looks a bit aggressive. Our long-term expectations are largely intact. Our wide moat rating is also unchanged.

Finally, management reiterated its interest in acquiring German potash and salt producer K+S. At EUR 41 per share, we think PotashCorp would be overpaying for K+S and we would likely cut our PotashCorp fair value if K+S agrees to be acquired at that price.

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