CF Industries Holdings (CF): A Comprehensive Analysis of Its Market Value
CF Industries Holdings Inc (NYSE:CF) recently experienced a daily gain of 1.26%, and a commendable 3-month gain of 22.41%. With an Earnings Per Share (EPS) of 12.08, the question arises: Is the stock fairly valued? This article provides a comprehensive valuation analysis of CF Industries Holdings, encouraging readers to delve into the financial intricacies of the company.
Introduction to CF Industries Holdings
CF Industries is a leading producer and distributor of nitrogen fertilizers, operating seven nitrogen facilities in North America and holding joint venture interests in further production capacity in the United Kingdom and Trinidad and Tobago. The company primarily uses low-cost U.S. natural gas as its feedstock, positioning CF as one of the lowest-cost nitrogen producers globally. CF Industries is also investing in carbon-free blue and green ammonia, an alternative fuel to hydrogen or a means to transport hydrogen.
With a stock price of $87.03 and a GF Value of $86.59, CF Industries Holdings appears to be fairly valued. This comparison between the stock price and the GF Value, an estimation of fair value, paves the way for a more profound exploration of the company's value, ingeniously integrating financial assessment with essential company details.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock, derived from GuruFocus' exclusive method. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. This is calculated based on three factors:
Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded.
GuruFocus adjustment factor based on the company's past returns and growth.
Future estimates of the business performance.
CF Industries Holdings' stock shows every sign of being fairly valued based on the GuruFocus Value calculation. At its current price of $87.03 per share, CF Industries Holdings has a market cap of $16.80 billion and the stock shows every sign of being fairly valued. Because CF Industries Holdings is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to understand its financial strength. CF Industries Holdings has a cash-to-debt ratio of 0.99, which ranks better than 58.26% of 242 companies in the Agriculture industry. The overall financial strength of CF Industries Holdings is 7 out of 10, which indicates that the financial strength of CF Industries Holdings is fair.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. CF Industries Holdings has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $8.70 billion and Earnings Per Share (EPS) of $12.08. Its operating margin is 41.09%, which ranks better than 95.38% of 238 companies in the Agriculture industry. Overall, the profitability of CF Industries Holdings is ranked 9 out of 10, which indicates strong profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long-term stock performance of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of CF Industries Holdings is 38.3%, which ranks better than 84.82% of 224 companies in the Agriculture industry. The 3-year average EBITDA growth rate is 53.9%, which ranks better than 85.12% of 215 companies in the Agriculture industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, CF Industries Holdings's ROIC is 28.16 while its WACC came in at 10.48.
Conclusion
Overall, CF Industries Holdings (NYSE:CF) stock shows every sign of being fairly valued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 85.12% of 215 companies in the Agriculture industry. To learn more about CF Industries Holdings stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
