CF Industries Holdings, Inc. (NYSE: CF) shares have jumped 42 percent over the past year, prompting a downgrade by Citi on valuation.
CF Industries shares are factoring in urea prices of $300 per ton in 2019 as opposed the $270 per ton Citi is modeling that assumes more "mid-cycle" type multiples, Juvekar said in a Tuesday note. (See the analyst's track record here.)
Flat urea prices would be a negative for investors, who are bracing for better near-term conditions, as higher U.S. urea prices are needed to attract imports ahead of planting, the analyst said.
Some of the factors that drove Citi's upgrade of urea prices from $160 per ton last summer to $250 per ton may dissipate, leading to lower prices, Juvekar said.
"Tactically, given the run in CF shares we think it may be difficult for near-term outperformance to continue in a falling urea price environment."
Citi assumes a 30-percent sequential decline in urea prices into the third quarter. In the long run, Citi projects favorable trends due to urea supply growth from 2018-2021 that appears to fall consistently beneath long-term demand growth.
Although marking its first-quarter earnings per share estimates to market, Citi said its 2018-2022 earnings per share estimates are "mostly unchanged."
Citi's bull-case scenario sees upside to $55 with strengthening urea prices, while its bear case has shares dropping to $35 in the event of weakening urea prices.
The Price Action
CF Industries shares were down 3.51 percent Tuesday afternoon.
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Latest Ratings for CF
|Mar 2018||Bank of America||Downgrades||Buy||Underperform|
|Mar 2018||Cowen & Co.||Upgrades||Market Perform||Outperform|
View More Analyst Ratings for CF
View the Latest Analyst Ratings
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