CF Industries Holdings, Inc. ( CF Quick Quote CF - Free Report) is expected to gain from higher demand for nitrogen fertilizers and higher prices amid headwinds stemming from increased natural gas costs and maintenance turnarounds.
Shares of the fertilizer maker are up 34% in the past year compared with 50% surge of the
industry. Image Source: Zacks Investment Research
Let’s discuss why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Aiding CF?
CF Industries is benefiting from higher nitrogen fertilizer demand in major markets. Global nitrogen demand is expected to remain strong this year. Industrial demand has also recovered from the pandemic-related disruptions. Higher economic activities have contributed to higher industrial consumption of nitrogen products. In 2021, demand for nitrogen is expected to be driven by higher corn acres in the United States.
Higher crop prices, increased planted corn acres and improved farm economics are likely to increase demand in Brazil this year. Urea tender volumes are also expected remain healthy in India in 2021.
CF Industries is also benefiting from higher nitrogen prices. The company is benefiting from recovery in nitrogen pricing in 2021 on the back of lower supply resulting from reduced operating rates across Europe and Asia. Prices are also expected to gain from higher commodity crop futures prices. Higher nitrogen prices have boosted the company’s top and the bottom line in the last reported quarter. CF Industries expects nitrogen pricing to be positive in 2021 as global nitrogen supply and demand balance have been tightened by high energy prices in Asia and Europe as well as the need to replenish coarse grains stocks globally.
The company continues to generate strong cash flows and is focused on boosting shareholders’ value. It is committed toward returning cash to shareholders through opportunistic share buybacks and quarterly dividends.
A Few Concerns
CF Industries is exposed to headwinds from higher natural gas cost in 2021. It witnessed higher year-over-year costs in first-half 2021. The increase was partly driven by higher natural gas costs in the U.K. and rise in gas prices in North America stemming from severe winter weather. The company expects natural gas costs to increase year over year in 2021. As such, higher natural gas costs may increase its cost of sales and hurt margins.
The company also faces headwind from maintenance turnarounds in 2021, which is expected to hurt production. Its ammonia production is expected to be impacted by planned maintenance and turnaround activities and natural gas-driven curtailments. In addition to normal turnarounds this year, the company is also executing those that were deferred from 2020.
Sales volumes are also expected to decline in 2021 on a year-over-year basis due to reduced year-end inventory and lower expected production due to maintenance.
Stocks to Consider
Some better-ranked stocks in the basic materials space are
Nucor Corporation ( NUE Quick Quote NUE - Free Report) , Dow Inc. ( DOW Quick Quote DOW - Free Report) and Cabot Corporation ( CBT Quick Quote CBT - Free Report) .
Nucor has a projected earnings growth rate of around 494% for the current year. The company’s shares have soared 156.7% in a year. It currently sports a Zacks Rank #1 (Strong Buy). You can see
the complete list of today’s Zacks #1 Rank stocks here.
Dow has an expected earnings growth rate of around 403.01% for the current year. The company’s shares have gained 38.2% in the past year. It currently holds a Zacks Rank #2 (Buy).
Cabot has an expected earnings growth rate of around 138.5% for the current fiscal. The company’s shares have rallied 37.2% in the past year. It currently carries a Zacks Rank #2.