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The fertilizer companies are out of favor. CF Industries Holdings Inc. (CF - Analyst Report) is trading at just 6.3x forward estimates. Yet this Zacks #1 Rank (strong buy) is expected to grow earnings by 162% in 2011. What's holding this stock back?

CF Industries manufactures nitrogen and phosphate fertilizers.

It is the largest nitrogen fertilizer distributor in North America with manufacturing facilities in the United States and Canada. It is also the third largest phosphate manufacturer with operations in Central Florida.

Record Sales and Net Earnings in the Third Quarter

On Nov 1, CF Industries reported its third quarter results and surprised on the Zacks Consensus Estimate for the fourth quarter in a row. Earnings per share were $5.16 compared to the consensus of $4.82. The company made just 67 cents per share in the year ago period.

Sales soared 53% to a record $1.4 billion from $917.1 million due to higher product prices. Average realized prices for all of the major products rose by 33% or more compared to the prices in the third quarter last year. Sales volume edged up to 3.5 million tons from 3.4 million tons in the year ago quarter.

Third quarter is usually the seasonally weak month but crop nutrient prices remained firm during the summer months because of a tight global supply and strong restocking demand in the northern hemisphere.

Nitrogen volumes rose by 62,000 tons to 3 million tons in the third quarter. But sales were 52% higher and gross margin as a percent of sales surged to 49% from 19% in the year ago period. Its ammonia plants were running on full throttle, basically at 100% of normal capacity.

Cash Hoard and Share Repurchases

CF had a record operating cash flow for any quarter of more than $1 billion, reflecting higher earnings and a larger increase in customer deposits.

As of Sep 30, 2011, CF had cash, cash equivalents and short-term investments of $1.4 billion, including $878.2 million customer deposits.

Earlier in the year, the company started a share repurchase program believing that its shares were a good value. In the third quarter, it repurchased 5.6 million shares for $878.4 million and then added more shares in October to bring the total for the year to 6.5 million at the cost of a $1 billion. The average price per share was $153.49.

Outlook for 2012 Still Looks Good

From the company's perspective, the market for crop nutrients still looks favorable. U.S. farmers are expected to plan 93.5 million acres of corn in 2012, an increase of 1.6 million acres from 2011.

Global supplies of fertilizers continue to be tight. CF expects them to remain so through the fourth quarter of 2011. For 2012, CF expects the year to open with strong momentum.

Zacks Consensus Estimates Rise for 2011 and 2012

CF is expected to have explosive growth in 2011. The Zacks Consensus Estimate has risen to $22.62 from $20.91 in the last 60 days. This is earnings growth of 162% as it made just $8.62 last year.

But 2012 is expected to be a different story. The analysts aren't as optimistic that the growth can be sustained.

While the Zacks Consensus Estimate jumped to $23.08 from $20.30 in the last two months, this is earnings growth of just 2% over 2011.

Strong Value Play

Shares have been on a roller coaster ride all year. They hit a new high over the summer only to plunge in September.

Despite another mini-rally, shares are once again trading on the lower end of the range.

Still, given the strong earnings growth, the shares are cheap at just 6.3x forward estimates. This is well under its peers, which trade with an average P/E of 9.6.

The company also has an attractive price-to-book ratio of 2.2. A P/B under 3.0 usually indicates "value."

Additionally, the company's 1-year return on equity (ROE) is a stellar 27.4%, which is higher than its peers at 25.9%.

CF Industries is a leader in the fertilizer sector. With demand expected to remain strong for nutrients worldwide, CF is an attractive play for value investors looking for a play in the agriculture sector.

Disclosure: The author of this article owns shares of CF.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at traceyryniec.

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