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Here's Why You Should Hold Onto CF Industries (CF) Stock for Now
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CF Industries Holdings, Inc. (CF - Free Report) is expected to benefit from higher nitrogen fertilizer demand in major markets and lower natural gas costs amid headwinds from weaker nitrogen prices.
The company’s shares are up 2.5% over a year compared with a 23.2% decline of its industry.
Image Source: Zacks Investment Research
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
Healthy Nitrogen Demand, Lower Gas Costs Aid CF
CF Industries is benefiting from the rising global demand for nitrogen fertilizers, which is driven by significant agricultural demand. Industrial demand for nitrogen has also recovered from the pandemic-related disruptions. Global demand is expected to remain strong in the near future due to recovering industrial demand and farmer economics.
High levels of corn planted acres and low nitrogen channel inventories are expected to drive demand for nitrogen in North America. Demand for urea is also likely to remain strong in Brazil and India. Demand in India is expected to be driven by an uptick in domestic production on the back of higher operating rates and favorable weather conditions.
CF, on its second-quarter call, said that it anticipates the global supply-demand balance to remain positive over the near term, driven by nitrogen import requirements for Brazil and India until the end of the year, as well as sustained wide energy spreads between North America and high-cost production in Europe.
Moreover, CF stands to benefit from lower natural gas prices. It witnessed a decline in natural gas costs in the second quarter of 2024. The average cost of natural gas fell to $1.90 per MMBtu in the quarter from $2.75 per MMBtu in the year-ago quarter. Lower natural gas costs led to a decline in the company's cost of sales. The benefits of reduced gas costs are expected to continue in the third quarter.
Moreover, CF remains committed to boosting shareholders’ value by leveraging strong cash flows. The company repurchased 8.3 million shares for $652 million in the first half of 2024, including 4 million shares for $305 million in the second quarter. The current $3 billion share repurchase program had around $1.9 billion remaining at the end of the second quarter. CF returned $832 million through dividends and share repurchases during first-half 2024. Earlier this year, the company also announced a 25% increase in quarterly dividend to 50 cents per share.
Weaker Nitrogen Prices Weigh on Margins
CF is exposed to headwinds from softer nitrogen prices. Global nitrogen prices have declined since the beginning of 2023. Higher global supply availability driven by higher global operating rates due to lower global energy costs has resulted in a decline in prices. Lower average selling prices weighed on CF's top line in the second quarter.
Average selling prices in the second quarter were lower year over year due to a fall in global energy costs, which reduced the global market clearing price required to meet demand. The weak pricing environment is expected to continue over the near term. Lower pricing is likely to continue weighing on the company’s sales and margins.
The Zacks Consensus Estimate for Newmont’s current-year earnings is pegged at $2.82, indicating a rise of 75.2% from year-ago levels. The consensus estimate for NEM’s earnings has increased 16% in the past 60 days. The stock has rallied around 34% in the past year.
The consensus estimate for Franco-Nevada’s current-year earnings has increased by 3% in the past 60 days. FNV beat the consensus estimate in three of the last four quarters. In this timeframe, it delivered an earnings surprise of around 6%, on average.
The Zacks Consensus Estimate for Agnico Eagle’s current-year earnings is pegged at $3.65, indicating a year-over-year rise of 63.7%. AEM’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average earnings surprise being 15.7%. The company’s shares have rallied roughly 68% in the past year.
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Here's Why You Should Hold Onto CF Industries (CF) Stock for Now
CF Industries Holdings, Inc. (CF - Free Report) is expected to benefit from higher nitrogen fertilizer demand in major markets and lower natural gas costs amid headwinds from weaker nitrogen prices.
The company’s shares are up 2.5% over a year compared with a 23.2% decline of its industry.
Image Source: Zacks Investment Research
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
Healthy Nitrogen Demand, Lower Gas Costs Aid CF
CF Industries is benefiting from the rising global demand for nitrogen fertilizers, which is driven by significant agricultural demand. Industrial demand for nitrogen has also recovered from the pandemic-related disruptions. Global demand is expected to remain strong in the near future due to recovering industrial demand and farmer economics.
High levels of corn planted acres and low nitrogen channel inventories are expected to drive demand for nitrogen in North America. Demand for urea is also likely to remain strong in Brazil and India. Demand in India is expected to be driven by an uptick in domestic production on the back of higher operating rates and favorable weather conditions.
CF, on its second-quarter call, said that it anticipates the global supply-demand balance to remain positive over the near term, driven by nitrogen import requirements for Brazil and India until the end of the year, as well as sustained wide energy spreads between North America and high-cost production in Europe.
Moreover, CF stands to benefit from lower natural gas prices. It witnessed a decline in natural gas costs in the second quarter of 2024. The average cost of natural gas fell to $1.90 per MMBtu in the quarter from $2.75 per MMBtu in the year-ago quarter. Lower natural gas costs led to a decline in the company's cost of sales. The benefits of reduced gas costs are expected to continue in the third quarter.
Moreover, CF remains committed to boosting shareholders’ value by leveraging strong cash flows. The company repurchased 8.3 million shares for $652 million in the first half of 2024, including 4 million shares for $305 million in the second quarter. The current $3 billion share repurchase program had around $1.9 billion remaining at the end of the second quarter. CF returned $832 million through dividends and share repurchases during first-half 2024. Earlier this year, the company also announced a 25% increase in quarterly dividend to 50 cents per share.
Weaker Nitrogen Prices Weigh on Margins
CF is exposed to headwinds from softer nitrogen prices. Global nitrogen prices have declined since the beginning of 2023. Higher global supply availability driven by higher global operating rates due to lower global energy costs has resulted in a decline in prices. Lower average selling prices weighed on CF's top line in the second quarter.
Average selling prices in the second quarter were lower year over year due to a fall in global energy costs, which reduced the global market clearing price required to meet demand. The weak pricing environment is expected to continue over the near term. Lower pricing is likely to continue weighing on the company’s sales and margins.
CF Industries Holdings, Inc. Price and Consensus
CF Industries Holdings, Inc. price-consensus-chart | CF Industries Holdings, Inc. Quote
Stocks to Consider
Some better-ranked stocks in the Basic Materials space are Newmont Corporation (NEM - Free Report) , Franco-Nevada Corporation (FNV - Free Report) and Agnico Eagle Mines Limited (AEM - Free Report) . Newmont and Franco-Nevada sport a Zacks Rank #1 (Strong Buy), and Agnico Eagle carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Newmont’s current-year earnings is pegged at $2.82, indicating a rise of 75.2% from year-ago levels. The consensus estimate for NEM’s earnings has increased 16% in the past 60 days. The stock has rallied around 34% in the past year.
The consensus estimate for Franco-Nevada’s current-year earnings has increased by 3% in the past 60 days. FNV beat the consensus estimate in three of the last four quarters. In this timeframe, it delivered an earnings surprise of around 6%, on average.
The Zacks Consensus Estimate for Agnico Eagle’s current-year earnings is pegged at $3.65, indicating a year-over-year rise of 63.7%. AEM’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average earnings surprise being 15.7%. The company’s shares have rallied roughly 68% in the past year.