On Aug 13, we issued an updated research report on
). While the fertilizer maker should benefit from its capacity
expansion projects and healthy domestic corn plantations, pricing
pressure and high debt level remain concerns.
CF Industries' profit for second-quarter 2014, reported on Aug
6, slid year over year on a double-digit decline in sales, hurt by
lower fertilizer pricing. Earnings missed the Zacks Consensus
Estimate while sales beat. CF Industries expects to benefit from a
number of factors supporting its growth and potential to generate
sustainable cash flows.
CF Industries, a Zacks Rank #3 (Hold) stock, should benefit from
low-cost North American natural gas and a healthy start to the
domestic planting season. It is expected to gain from healthy U.S.
corn plantations. More than 90 million acres of corn are expected
to be planted next year, thereby driving the demand for
CF Industries remains on track with its capacity expansion
projects in Louisiana and Iowa. Both projects are expected to
expand the company's production capacity by 25%. CF Industries
plans to spend roughly $1.7 billion on capacity expansion projects
Moreover, the acquisition of Viterra Inc.'s 34% interest in the
Medicine Hat nitrogen facility underscores CF Industries' strategy
to invest in lucrative projects. Following the acquisition, the
company's annual marketable nitrogen volume rose by roughly 270,000
net tons of ammonia and 275,000 tons of urea.
Moreover, CF Industries has a strong cash flow profile, which
allows it to return value to shareholders and invest in growth
initiatives. The company recently announced a 50% hike in its
quarterly dividend and an additional $1 billion share repurchase
However, CF Industries continues to see lower nitrogen sales.
Lower prices for major nitrogen products are hurting sales and
margins in this business as witnessed in the second quarter. Urea
prices have been under pressure due to higher supply from Chinese
export producers. The opening of China's low-tariff export season
(leading to higher export) has put additional pressure on global
In addition, CF Industries faces intense price competition from
both domestic and foreign fertilizer producers. The prices of its
products are highly sensitive to demand and supply. CF Industries
is also exposed to volatility in raw material costs.
CF Industries also continues to operate with high debt level
with total debt of roughly $4.6 billion at the end of the second
quarter, up 48% year over year.
Other Stocks to Consider
Other companies in the basic materials sector worth considering
include Chemical & Mining Co. of Chile Inc. (
), Yara International ASA (
) and Celanese Corporation (
) with all holding a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research?
Today, you can download 7 Best Stocks for the Next 30 Days.
Click to get this free report
CF INDUS HLDGS (CF): Free Stock Analysis Report
SOC QUIMICA MIN (SQM): Free Stock Analysis
CELANESE CP-A (CE): Free Stock Analysis Report
YARA INTL-ADR (YARIY): Get Free Report
To read this article on Zacks.com click here.