CF Industries Holdings, Inc. CF is expected to benefit from higher nitrogen fertilizer demand and lower natural gas costs amid headwinds from softer product prices.
Shares of the fertilizer maker are down 25% over a year, compared with 23.2% decline of its industry.
Let’s delve deeper to find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Going in CF’s Favor?
CF Industries should gain from higher nitrogen fertilizer demand in major markets in 2020. The company, last month, said that it expects positive global nitrogen demand in the near term, driven by higher nitrogen-consuming planted corn and coarse grain acres in North America this year compared with 2019 levels. It projects 92-94 million acres of corn to be planted in the United States in 2020, aided by favorable planting conditions.
Demand for nitrogen in North America is expected to be strong in the 2020 spring application season. Normal planting conditions are expected to drive demand. The company also sees continued strong demand for urea in Brazil. Lower domestic urea production in Brazil is likely to drive demand this year. Urea demand is also expected to remain favorable in India.
Low natural gas costs also have been an advantage for CF Industries. The company is enjoying the benefits of access to low cost and abundant North American natural gas supply. It saw lower year-over-year natural gas costs in the first quarter of 2020, supporting its margins. The company expects natural gas cost advantage to continue for the remainder of 2020.
The company also remains committed to return value to shareholders leveraging strong cash flows. CF Industries generated operating cash flows of roughly $1.5 billion and free cash flow of $915 million in 2019. It also returned roughly $602 million to shareholders through dividend and share buybacks last year. The company also repurchased around 2.6 million shares during the first quarter. Since the announcement of the share repurchase authorization in February 2019, it has repurchased around 10.2 million shares for $437 million.
Weak Pricing A Worry
CF Industries faces headwinds from lower nitrogen prices. Lower product prices hurt its revenues in the first quarter. Average selling prices in the first quarter were lower on a year-over-year basis across all segments.
Prices were affected by greater global supply availability due to increased global operating rates. Moreover, lower global energy prices put pressure on product prices. Pricing weakness is likely to continue through the first half of 2020. As such, lower year over year product prices are expected to continue to weigh on the company’s results.
CF Industries Holdings, Inc. Price and Consensus
CF Industries Holdings, Inc. price-consensus-chart | CF Industries Holdings, Inc. Quote
Stocks to Consider
Better-ranked stocks worth considering in the basic materials space are Agnico Eagle Mines Limited AEM, Barrick Gold Corporation GOLD and Equinox Gold Corp. EQX.
Agnico Eagle has a projected earnings growth rate of 75.3% for the current year. The company’s shares have gained roughly 27% in a year. It currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Barrick Gold has a projected earnings growth rate of 64.7% for the current year. The company’s shares have shot up around 76% in a year. It currently has a Zacks Rank #2 (Buy).
Equinox Gold has a projected earnings growth rate of 65.5% for the current year. The company’s shares have surged around 53% in a year. It currently has a Zacks Rank #2.
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