Unveiling CF Industries Holdings (CF)'s Value: Is It Really Priced Right? A Comprehensive Guide
CF Industries Holdings Inc (NYSE:CF) witnessed a daily gain of 3.82%, and a 3-month gain of 24.6%. The company reported an impressive Earnings Per Share (EPS) (EPS) of 12.08. Given these promising figures, the crucial question arises - is the stock fairly valued? This article provides a comprehensive valuation analysis of CF Industries Holdings (NYSE:CF), encouraging readers to delve into the subsequent sections for a deeper understanding.
Company Introduction
CF Industries Holdings Inc (NYSE:CF) is a leading producer and distributor of nitrogen fertilizers. With seven nitrogen facilities in North America and joint venture interests in the United Kingdom and Trinidad and Tobago, CF Industries Holdings (NYSE:CF) is a global player in the agriculture industry. The company primarily uses low-cost U.S. natural gas as its feedstock, positioning it as one of the lowest-cost nitrogen producers globally. CF Industries Holdings (NYSE:CF) is also investing in carbon-free blue and green ammonia, an alternative fuel to hydrogen or a means to transport hydrogen. With a market cap of $16.20 billion and sales of $8.70 billion, it's essential to compare the stock price with the GF Value to estimate its fair value.
Understanding GF Value
The GF Value represents the intrinsic value of a stock derived from our unique methodology. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of business performance. The GF Value Line on our summary page provides a quick overview of the stock's fair trading value.
At its current price of $83.96 per share, CF Industries Holdings (NYSE:CF) appears to be fairly valued according to GuruFocus' valuation method. The GF Value Line suggests that if the stock price is significantly above the GF Value Line, the stock may be overvalued, and its future return could be poor. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued, and its future return could be higher.
Since CF Industries Holdings (NYSE:CF) 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
It's crucial to assess the financial strength of a company before investing in its stock. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are excellent indicators of a company's financial strength. CF Industries Holdings (NYSE:CF) has a cash-to-debt ratio of 0.99, which is better than 57.68% of 241 companies in the Agriculture industry. The overall financial strength of CF Industries Holdings (NYSE:CF) is 7 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. CF Industries Holdings (NYSE:CF) has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $8.70 billion and an EPS of $12.08. Its operating margin is 41.09%, which ranks better than 94.87% of 234 companies in the Agriculture industry. Overall, the profitability of CF Industries Holdings (NYSE:CF) is ranked 9 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. Growth is closely correlated with the long-term performance of a company's stock. CF Industries Holdings's 3-year average revenue growth rate is better than 84.82% of 224 companies in the Agriculture industry. CF Industries Holdings's 3-year average EBITDA growth rate is 53.9%, which ranks better than 85.05% of 214 companies in the Agriculture industry. The growth of CF Industries Holdings (NYSE:CF) is ranked better than 85.05% of 214 companies in the Agriculture industry.
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, CF Industries Holdings's ROIC is 28.16, and its WACC is 10.21.
Conclusion
In conclusion, the stock of CF Industries Holdings (NYSE:CF) appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 85.05% of 214 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.
