We have retained our Neutral recommendation on leading
) following its mixed first-quarter 2013 results. While the
company is expected to benefit from higher grain prices, we
remain on the sidelines considering volatility in raw material
costs and high debt level.
CF Industries' adjusted earnings for the first quarter, reported
on May 8, beat the Zacks Consensus Estimate. However, revenues
fell at a double-digit clip on declines across nitrogen and
phosphate businesses and missed expectations. CF Industries is
optimistic about the second quarter based on higher grain prices.
CF Industries, a Zacks Rank #3 (Hold) stock, is benefiting from
high global prices for commodities, declining natural gas costs
in North America and a solid start to the domestic planting
season. Moreover, the company has a strong cash flow profile,
which allows it to return value to shareholders and invest in
Falling natural gas prices have been a boon for CF Industries.
Moreover, the company is expected to benefit from strong U.S.
corn plantations. Roughly 97 million acres of corn are expected
to be planted in 2013, thereby driving the demand for crop
nutrients, in particular, nitrogen.
In addition, the roughly $900 million 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, CF Industries' annual
marketable nitrogen volume increased by about 425,000 gross tons
of ammonia and 275,000 tons of urea.
However, CF Industries faces intense pricing competition from
both domestic and foreign fertilizer producers. It is also
susceptible to cyclical and seasonal changes. Moreover, the
prices of its products are highly sensitive to demand and supply.
CF Industries is also exposed to volatility in raw material costs
and has significant debt.
Other Stocks to Consider
Other companies in the basic materials sector with favorable
Zacks Rank are
American Vanguard Corp.
OM Group Inc.
). While both American Vanguard and OM Group retain a Zacks Rank
#1 (Strong Buy), Ferro carries a Zacks Rank #2 (Buy).
AMER VANGUARD (AVD): Free Stock Analysis
CF INDUS HLDGS (CF): Free Stock Analysis
FERRO CORP (FOE): Free Stock Analysis Report
OM GROUP INC (OMG): Free Stock Analysis
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