CF Industries Holdings, Inc. CF is poised to benefit from higher nitrogen fertilizer demand and lower natural gas costs amid headwinds from weak product prices.
Shares of the fertilizer maker are down 43.8% over a year, compared with 47.4% 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 Working in CF’s Favor?
CF Industries is expected to benefit from higher nitrogen fertilizer demand in major markets in 2020. The company expects global nitrogen demand to be positive over the near term as application seasons develop in different regions globally. In North America, crop futures and an expected return to traditional planting conditions in the region are projected to support a rise in nitrogen-consuming planted corn acres in 2020 on a year-over-year basis.
CF Industries expects demand for nitrogen in North America to be strong in the spring application season after a weak fall application season due to bad weather. In North America, farmers are expected to plant roughly 92-94 million acres of corn in 2020, per the company.
The company also envisions demand to remain strong in India this year. It also sees demand in Brazil to be favorable in 2020, backed by reduced domestic urea production and additional planted corn acres.
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 2019, supporting its financial performance. The company expects natural gas cost advantage to continue in 2020, especially in the first half.
The company 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. Moreover, the company is currently executing a $1 billion share repurchase program that is authorized through 2021.
Weak Pricing A Concern
CF Industries faces headwinds from lower nitrogen prices. The company saw lower prices across all major products in the last reported quarter, hurting its revenues.
Prices were affected by greater global supply availability due to increased global operating rates. Moreover, lower global energy prices put pressure on product prices. The company expects pricing weakness to continue through the first half of 2020. As such, lower year over year product prices are expected to continue to weigh on its results.
CF Industries Holdings, Inc. Price and Consensus
CF Industries Holdings, Inc. price-consensus-chart | CF Industries Holdings, Inc. Quote
Stocks to Consider
Some better-ranked stocks in the basic materials space are NovaGold Resources Inc. NG, Daqo New Energy Corp. DQ and Barrick Gold Corporation GOLD.
NovaGold has a projected earnings growth rate of 11.1% for 2020. It currently carries a Zacks Rank #1 (Strong Buy). The company’s shares have surged roughly 52% in a year. You can see the complete list of today’s Zacks #1 Rank stocks here.
Daqo New Energy has a projected earnings growth rate of 336.1% for 2020. The company’s shares have rallied around 44% in a year. It currently sports a Zacks Rank #2 (Buy).
Barrick Gold currently has a Zacks Rank #2 and a projected earnings growth rate of 43.1% for 2020. The company’s shares have gained around 11% in a year.
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