CF Industries Downgraded to Strong Sell - Analyst Blog

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On Jul 23, Zacks Investment Research downgraded leading fertilizer company CF Industries Holdings, Inc. ( CF ) to Zacks Rank #5 (Strong Sell).

Why Downgraded?

CF Industries reported mixed first-quarter 2013 results on May 8.  The company's adjusted earnings (excluding one-time items) of $6.03 per share were below the year-ago earnings of $6.06, but exceeded the Zacks Consensus Estimate of $6.00.

Sales were down 12.5% to $1.34 billion in the quarter from $1.53 billion in the prior-year quarter. It also missed the Zacks Consensus Estimate of $1.45 billion. The decrease reflected lower sales volumes in both the Nitrogen and Phosphate divisions and lower average prices for urea and phosphates. Sales also declined due to the impact of a change in the selling price calculation method used for products sold by Canadian Fertilizers Limited (CFL).

CF Industries' sales from Nitrogen segment and Phosphate segment declined year-over-year, resulting in lower gross margins. Lower export sales associated with a seasonally slow international phosphate market and higher phosphate production costs led to lower sales in the phosphate segment.

CF Industries faces intense pricing competition from both domestic and foreign fertilizer producers. The company is facing stiff competition from its domestic peers such as Agrium, Koch Nitrogen, Mosiac, Potash Corp. and Simplot.

CF Industries is also susceptible to cyclical and seasonal changes. The prices of its products are highly sensitive to demand and supply. During periods of industry oversupply, the operational results are affected negatively as the price at which the products are sold declines, resulting in reduced profit margins, write-downs in the value of inventory and temporary or permanent curtailments of production.

Volatility in raw material costs and high debt level are also matters of concerns for CF Industries. The company's existing indebtedness and any additional debt, which it may incur in the future, could have adverse impact on its operations and liquidity.

The Zacks Consensus Estimate for 2013 for CF Industries has gone down 3.7% to $24.69 per share as most estimates were revised lower over the last 60 days. Similarly, the Zacks Consensus Estimate for 2014 has also decreased 3.8% to $23.05 per share.

Other Stocks to Consider

Other companies in  the basic material sector with favorable Zacks Rank are The Andersons, Inc. ( ANDE ), Limoneira Co. ( LMNR ) and Ferro Corp. ( FOE ). All of them hold a Zacks Rank #2 (Buy).



ANDERSONS INC (ANDE): Free Stock Analysis Report

CF INDUS HLDGS (CF): Free Stock Analysis Report

FERRO CORP (FOE): Free Stock Analysis Report

LIMONEIRA CO (LMNR): Free Stock Analysis Report

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Zacks Investment Research



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ANDE , CF , FOE , LMNR

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