Fundamentals at CF Industries Holdings, Inc. (NYSE: CF) have improved significantly, but the fertilizer company could suffer a setback, according to Bank of America Merrill Lynch.
Meaningful risks surround nitrogen prices in the second half of 2018 that could test the market's view of the slope of the recovery, Byrne said in a Thursday note. (See the analyst's track record here.)
BofA projects that spot NOLA urea prices will drop from $258/st to $200/st over the next six months due to recovering Chinese production rates; the U.S. returning to a net export position in the summer fill season; tapering seasonal demand in the northern hemisphere; and lower international energy prices.
Longer-term, China's increased focus on fertilizer formulations could cause nitrogen fertilizer demand to decline on a multiyear basis, Byrne said.
Although maintaining a positive multiyear constructive view on the nitrogen industry, BofA said the timeframe for CF Industries generating about $5-plus per share in free cash flow is now pushed out beyond 2020.
"Our new 2018-2019 EBITDA estimates are 5-10 percent below consensus ($2.5-$3 in FCF/shr) and our new $40 PO (was $48) is based on 10x (was 11.5x) our 2018E EV/EBITDA."
The Price Action
CF Industries shares were up about 39 percent over the past year until Wednesday.
The stock was down 2.43 percent at $40.89 at the close Thursday.
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Latest Ratings for CF
|Mar 2018||Bank of America||Downgrades||Buy||Underperform|
|Mar 2018||Cowen & Co.||Upgrades||Market Perform||Outperform|
|Feb 2018||Stephens & Co.||Maintains||Equal-Weight||Equal-Weight|
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