Back to top

Bear of the Day: CF Industries (CF)

Read MoreHide Full Article
CF Industries Holdings, Inc. (CF - Free Report) recently posted its first quarterly loss in 6 years. This Zacks Rank #5 (Strong Sell) is still getting hit by declining fertilizer prices.

CF Industries is one of the largest producers of nitrogen fertilizer products in the world. It has manufacturing facilities in the US, Canada and the United Kingdom. It also owns a 50% interest in an ammonia facility in the The Republic of Trinidad and Tobago.

Earnings Plunge Year Over Year

On Nov 2, CF Industries reported its third quarter results and beat on the Zacks Consensus Estimate by 8 cents. Adjusted earnings were $0.13 compared to the Zacks Consensus of $0.05.

The company made $0.54 in the year ago quarter.

Net sales fell 27% to $680 million from $928 million a year ago. The company got hit by lower nitrogen prices. The average selling price for CF products in the quarter was $185 per ton compared to $289 per ton for the same quarter a year ago. That's a decline of 36%.

It's no surprise, then, that the company's earnings estimates are in a steep decline.

Estimates Still Being Cut

The earnings estimates haven't yet bottomed in the fertilizer industry.

CF Industries made $3.88 last year. The 2016 Zacks Consensus Estimate has fallen to $0.97 and may be cut further. That's an earnings decline of 75%.

Right now, the analysts are hoping that this is the worst of it. The 2017 Zacks Consensus Estimate shows a small rebound to $1.12. But will that even hold?

CF Industries said that the third quarter prices were impacted by the "continuing global oversupply of nitrogen fertilizer and the overall lower industrial demand." It said that customers were unwilling to take inventory risks in the third quarter and implied in its outlook that the beginning of 2017 still looked tough.

The Balance Sheet

It wouldn't be unusual for investors to start to wonder about the company's balance sheet with these horrible industry conditions.

But as of Sep 30, 2016, CF Industries still had cash and cash equivalents of $1.55 billion and had no borrowings outstanding under its revolving credit facility. It was also in compliance with all applicable covenant requirements under its debt instruments.

Shares Sink Again

Shares have been in a downward spiral the last two years.

But that doesn't mean they're cheap. With the earnings plummeting at the same time, it means that CF still has a forward P/E of 25. Shares may not have touched the lows yet.

If you're an investor who wants to be the fertilizer industry, there's really nowhere to invest right now where earnings estimates are rising. Estimates are still being cut on Potash (POT and Mosaic (MOS - Free Report) .

Looks like the turnaround is on hold until the second half of 2017.

There's no where for investors to hide out. But Potash (POT) and Agrium (AGU) have decided to merge. That merger could have implications on the remaining big suppliers like CF Industries and Mosaic (MOS - Free Report) .

More Stocks to Sell. Now.

Beyond our Bear Stock of the Day, today's list of 220 Zacks Rank #5 Strong Sells demand even more urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. Many appear to be sound investments but, since 1988, such stocks have actually performed more than 11X worse than the S&P 500.

See today's Zacks ""Strong Sells"" absolutely free >>.

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

Potash Corporation of Saskatchewan Inc. (NTR) - free report >>

The Mosaic Company (MOS) - free report >>

CF Industries Holdings, Inc. (CF) - free report >>

More from Zacks Bear of the Day

You May Like