On May 14, we issued an updated research report on
). While the fertilizer maker should gain from favorable natural
gas costs and capacity expansion projects, pricing pressure and
high debt level remain concerns.
CF Industries' adjusted earnings for the first quarter of 2014,
reported on May 7, topped the Zacks Consensus Estimate. Reported
profit surged on a hefty gain from the sale of the company's
phosphate business to
). However, revenues fell on lower fertilizer pricing and missed
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. Moreover, the company has a strong cash
flow profile, which allows it to return value to shareholders and
invest in growth initiatives.
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 $2 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.
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 first quarter. Urea
prices have been under pressure due to higher supply from Chinese
export producers. CF Industries expects the opening of China's
low-tariff export season in Jul 2014 (leading to higher export) to
put additional pressure on global urea prices.
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 and has
Other Stocks to Consider
Other fertilizer stocks worth considering include
CVR Partners, LP
Yara International ASA
) with both holding a Zacks Rank #1 (Strong Buy).
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