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CF Industries' Shares Up 9% in a Month: Should You Buy the Stock?
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CF Industries Holdings, Inc.’s (CF - Free Report) shares have gained 9% in the past month, outperforming the Zacks Fertilizers industry’s rise of 3%. CF is benefiting from higher nitrogen fertilizer demand in major markets and lower natural gas costs amid headwinds from weaker nitrogen prices.
Technical indicators show that CF crossed above the 200-day simple moving average (SMA) in early Aug. 2024. The stock also eclipsed the 50-day SMA around the same time, signaling a bullish trend.
CF Stock Trades Above 50-Day SMA
Image Source: Zacks Investment Research
CF is currently trading at a roughly 8.8% discount to its 52-week high of $87.90 reached on Sept. 26, 2023.
Is the time right to buy CF’s shares for potential upside? Let’s take a look at the stock’s fundamentals.
Healthy Nitrogen Demand, Lower Gas Costs Aid CF Stock
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.
CF also 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.
CF Industries Remains Focused on Capital Allocation
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.
CF offers a dividend yield of 2.5% (above the S&P 500′s average dividend yield of roughly 2%) at the current stock price. Its payout ratio is 35% (a ratio below 60% is a good indicator that the dividend will be sustainable) with a five-year annualized dividend growth rate of 11.6%. Backed by strong financial health, the company's dividend is perceived to be safe and reliable.
Weaker Nitrogen Prices Weigh on CF’s Margins
CF Industries 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’ Earnings Estimates Going Up
The Zacks Consensus Estimate for 2024 for CF has been revised upward over the past 60 days. The consensus estimate for the third quarter of 2024 has also been revised higher over the same time frame.
Image Source: Zacks Investment Research
CF’s Valuation Looks Bit Stretched
CF Industries is currently trading at a forward 12-month earnings multiple of 13.89X, a roughly 9.7% premium to the peer group average of 12.66X, and higher than its five-year median.
Image Source: Zacks Investment Research
CF Stock Underperforms S&P 500
CF’s shares have ticked up 0.8% year to date, outperforming the industry’s 18.6% decline while underperforming the S&P 500’s rise of 15.9%. Its major fertilizer peers, The Mosaic Company (MOS - Free Report) , Nutrien Ltd. (NTR - Free Report) and Intrepid Potash, Inc. (IPI - Free Report) have lost 23.4%, 16.6% and 1%, respectively, over the same period.
CF’s YTD Price Performance
Image Source: Zacks Investment Research
Final Thoughts: Hold Onto CF Stock for Now
CF Industries benefits from higher demand for nitrogen fertilizers in key regions backed by supportive agricultural fundamentals. Lower natural gas prices also act in its favor. However, weaker nitrogen prices cast a pall on CF's prospects. Existing stakeholders should maintain their position in this Zacks Rank #3 (Hold) stock, while potential new investors may want to wait for a better entry point, given the stock's stretched valuation.
Image: Bigstock
CF Industries' Shares Up 9% in a Month: Should You Buy the Stock?
CF Industries Holdings, Inc.’s (CF - Free Report) shares have gained 9% in the past month, outperforming the Zacks Fertilizers industry’s rise of 3%. CF is benefiting from higher nitrogen fertilizer demand in major markets and lower natural gas costs amid headwinds from weaker nitrogen prices.
Technical indicators show that CF crossed above the 200-day simple moving average (SMA) in early Aug. 2024. The stock also eclipsed the 50-day SMA around the same time, signaling a bullish trend.
CF Stock Trades Above 50-Day SMA
CF is currently trading at a roughly 8.8% discount to its 52-week high of $87.90 reached on Sept. 26, 2023.
Is the time right to buy CF’s shares for potential upside? Let’s take a look at the stock’s fundamentals.
Healthy Nitrogen Demand, Lower Gas Costs Aid CF Stock
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.
CF also 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.
CF Industries Remains Focused on Capital Allocation
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.
CF offers a dividend yield of 2.5% (above the S&P 500′s average dividend yield of roughly 2%) at the current stock price. Its payout ratio is 35% (a ratio below 60% is a good indicator that the dividend will be sustainable) with a five-year annualized dividend growth rate of 11.6%. Backed by strong financial health, the company's dividend is perceived to be safe and reliable.
Weaker Nitrogen Prices Weigh on CF’s Margins
CF Industries 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’ Earnings Estimates Going Up
The Zacks Consensus Estimate for 2024 for CF has been revised upward over the past 60 days. The consensus estimate for the third quarter of 2024 has also been revised higher over the same time frame.
CF’s Valuation Looks Bit Stretched
CF Industries is currently trading at a forward 12-month earnings multiple of 13.89X, a roughly 9.7% premium to the peer group average of 12.66X, and higher than its five-year median.
CF Stock Underperforms S&P 500
CF’s shares have ticked up 0.8% year to date, outperforming the industry’s 18.6% decline while underperforming the S&P 500’s rise of 15.9%. Its major fertilizer peers, The Mosaic Company (MOS - Free Report) , Nutrien Ltd. (NTR - Free Report) and Intrepid Potash, Inc. (IPI - Free Report) have lost 23.4%, 16.6% and 1%, respectively, over the same period.
CF’s YTD Price Performance
Image Source: Zacks Investment Research
Final Thoughts: Hold Onto CF Stock for Now
CF Industries benefits from higher demand for nitrogen fertilizers in key regions backed by supportive agricultural fundamentals. Lower natural gas prices also act in its favor. However, weaker nitrogen prices cast a pall on CF's prospects. Existing stakeholders should maintain their position in this Zacks Rank #3 (Hold) stock, while potential new investors may want to wait for a better entry point, given the stock's stretched valuation.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.