CF Industries Holdings, Inc. CF is expected to gain from higher demand for nitrogen fertilizers and lower natural gas costs amid headwinds from weaker product prices.
Shares of the fertilizer maker are down 41.1% year to date compared with 26% decline of its industry.
Let’s delve deeper to find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Aiding CF?
CF Industries should benefit from higher nitrogen fertilizer demand in major markets in 2020. The company sees positive global nitrogen demand driven by higher nitrogen-consuming planted corn and coarse grain acres in North America this year compared with 2019 levels. It projects 92-94 million acres of corn to be planted in the United States in 2020, aided by favorable planting conditions.
Demand for nitrogen is expected to be strong in North America. Normal planting conditions are expected to drive demand in that region. The company also sees continued strong demand for urea in Brazil. Lower domestic urea production in Brazil is likely to drive demand this year. Urea demand is also expected to remain favorable in India.
Low natural gas costs also have been an advantage for CF Industries. The company is enjoying the benefits of access to low cost and abundant North American natural gas supply. It saw lower year-over-year natural gas costs in the first quarter of 2020, supporting its margins. The company expects natural gas cost advantage to continue for the remainder of 2020.
Moreover, CF Industries remains committed to return value to shareholders leveraging strong cash flows. CF Industries generated operating cash flows of roughly $1.5 billion and free cash flow of $915 million in 2019. It also returned roughly $602 million to shareholders through dividend and share buybacks last year. The company also repurchased around 2.6 million shares during the first quarter. Since the announcement of the share repurchase authorization in February 2019, it has repurchased around 10.2 million shares for $437 million.
Weak Pricing a Concern
CF Industries is exposed to headwinds from lower nitrogen prices. Lower product prices hurt its revenues in the first quarter. Average selling prices in the first quarter were lower on a year-over-year basis across all segments.
Prices were affected by greater global supply availability due to increased global operating rates. Moreover, lower global energy prices put pressure on product prices. Pricing weakness is likely to continue in the second quarter. As such, lower year over year product prices are expected to continue to weigh on the company’s results.
CF Industries Holdings, Inc. Price and Consensus
CF Industries Holdings, Inc. price-consensus-chart | CF Industries Holdings, Inc. Quote
Stocks to Consider
Better-ranked stocks worth considering in the basic materials space include Sandstorm Gold Ltd SAND, Harmony Gold Mining Company Limited HMY and Royal Gold, Inc. RGLD.
Sandstorm Gold has a projected earnings growth rate of 55.6% for the current year. The company’s shares have rallied roughly 71% in a year. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Harmony Gold has an expected earnings growth rate of 264.3% for the current fiscal year. The company’s shares have shot up around 146% in the past year. It presently carries a Zacks Rank #2.
Royal Gold has a projected earnings growth rate of 66.2% for the current year. The company’s shares have gained around 15% in a year. It currently has a Zacks Rank #2.
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