CF Industries Holdings, Inc. CF is gaining from healthy nitrogen fertilizer demand in major markets and lower natural gas costs amid headwinds from lower nitrogen prices.
The company’s shares are down 29.8% over a year compared with the 34.9% decline of its industry.
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Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
Healthy Nitrogen Demand Bodes Well
CF Industries is well-placed to gain from rising global demand for nitrogen fertilizers, driven by significant agricultural demand. Higher crop commodity prices are contributing to healthy demand globally. Industrial demand has also recovered from the pandemic-related disruptions.
The company expects demand to remain strong through the end of 2023 and into 2024, led by India and Brazil. Low channel inventories and favorable farm economics are expected to drive demand for nitrogen in North America. Increased planted corn acres and healthy farm economics are also expected to drive urea demand in Brazil. Moreover, urea demand in India is being supported by strong agricultural production.
The company is also benefiting from lower natural gas prices. CF Industries witnessed a significant decline in natural gas costs in the third quarter of 2023. Average cost of natural gas fell to $2.54 per MMBtu in the third quarter of 2023 from $8.35 per MMBtu in the year-ago quarter. Lower natural gas costs led to a decline in the company's cost of sales. The benefits of reduced gas costs are expected to continue in the fourth quarter.
CF Industries also remains committed to boosting shareholders’ value by leveraging strong cash flows. It generated operating cash flows of roughly $3.9 billion and a free cash flow of around $2.8 billion in 2022. The company also returned $1.65 billion to shareholders through share repurchases and dividends in 2022. During the first nine months of 2023, the company repurchased 5 million shares for $355 million, which included the purchase of 1.9 million shares for $150 million in the third quarter.
Weaker Nitrogen Prices a Concern
CF Industries faces headwinds from lower nitrogen prices. Global nitrogen prices have declined since the beginning of 2023. Higher global supply availability driven by higher global operating rates due to lower global energy costs has resulted in a decline in prices. Lower average selling prices weighed on CF's top line in the third quarter. The weak pricing environment is expected to continue in the fourth quarter. Lower pricing is expected to hurt the company’s sales and margins.
CF Industries Holdings, Inc. Price and Consensus
Stocks to Consider
Better-ranked stocks worth a look in the basic materials space include Denison Mines Corp. DNN, Axalta Coating Systems Ltd. AXTA and The Andersons Inc. ANDE.
Denison Mines has a projected earnings growth rate of 100% for the current year. DNN has a trailing four-quarter earnings surprise of roughly 225%, on average. The stock is up around 51% in a year. It currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
In the past 60 days, the Zacks Consensus Estimate for Axalta Coating Systems’ current year has been revised upward by 8.2%. AXTA, carrying a Zacks Rank #1, beat the Zacks Consensus Estimate in three of the last four quarters while missing in one quarter, with the average earnings surprise being 6.7%. The company’s shares have gained 18% in the past year.
Andersons currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for ANDE's current-year earnings has been revised 8.6% upward over the past 60 days. Andersons beat the Zacks Consensus Estimate in three of the last four quarters. It delivered a trailing four-quarter earnings surprise of 32.8%, on average. ANDE shares have rallied around 35% in a year.
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