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Why You Should Retain CF Industries (CF) in Your Portfolio
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CF Industries Holdings, Inc. (CF - Free Report) is well-placed to benefit from the rising nitrogen fertilizer demand in major markets and higher nitrogen prices amid headwinds from higher natural gas costs.
The company’s shares have rallied 131.5% over a year compared with the 57.5% rise of its industry.
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
Image Source: Zacks Investment Research
Strong Nitrogen Demand & Prices Bode Well
CF Industries is gaining from strong nitrogen fertilizer demand. Global demand for nitrogen is expected to remain strong in 2022. Higher crop commodity prices are contributing to healthy demand globally. Industrial demand has also recovered from the pandemic-related disruptions.
The company, on its second-quarter call, said that it sees the global nitrogen supply-demand balance to remain tight for the foreseeable future, supported by resilient agricultural-led demand and uncertainty about global production and export supply availability. Energy spreads between low-cost producers and marginal production in Europe and Asia also expected to remain historically wide.
CF Industries expects nitrogen demand for industrial use in North America to be supported by mining activity. It also envisions India to tender on a regular basis into 2023 as higher domestic production is unlikely to fully meet increased demand as growers boost grain production. The company also envisions urea consumption in Brazil to remain strong this year, backed by high crop prices, expected high planted corn acres and improved farm incomes.
The company is also benefiting from higher nitrogen prices on the back of lower supply resulting from reduced operating rates globally due to higher energy prices. Higher nitrogen prices are driving its sales as witnessed in the last-reported quarter. The positive pricing environment is expected to continue moving ahead. Global nitrogen supply is expected to remain challenged due to higher energy prices and geopolitical factors.
CF Industries also remains committed to boosting shareholders’ value by leveraging strong cash flows. Its net cash provided by operating activities was $889 million for the second quarter, up nearly seven-fold year over year. The company repurchased around 6.6 million shares for $590 million during the first half of 2022.
Higher Natural Gas Costs a Worry
The company is facing headwinds from higher natural gas costs, stemming from an increase across Europe and Asia. The average cost of natural gas reflected in its cost of sales increased to $7.05 per million British thermal units (MMBtu) in the second quarter from $3.25 per MMBtu in the year-ago quarter. Gas costs are expected to remain elevated in Europe through the end of 2022 due to the uncertainties over the supply from Russia. High natural gas costs are expected to increase the company’s cost of sales.
Some better-ranked stocks worth considering in the basic materials space include Daqo New Energy Corp. (DQ - Free Report) , Albemarle Corporation (ALB - Free Report) and Sociedad Quimica y Minera de Chile S.A. (SQM - Free Report) .
Daqo New Energy, currently carrying a Zacks Rank #1 (Strong Buy), has an expected earnings growth rate of 177.5% for the current year. The Zacks Consensus Estimate for DQ's earnings for the current fiscal has been revised 20.8% upward in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Daqo New Energy’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, the average being 10.8%. DQ has gained around 4% over a year.
Albemarle has a projected earnings growth rate of 425.7% for the current year. The consensus estimate for ALB's current-year earnings has been revised 67.9% upward in the past 60 days.
Albemarle’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 24.2%, on average. ALB has gained around 9% in a year and currently carries a Zacks Rank #1.
Sociedad has a projected earnings growth rate of 520.5% for the current year. The Zacks Consensus Estimate for SQM’s current-year earnings has been revised 34% upward in the past 60 days.
Sociedad’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters, the average being 28.2%. SQM has rallied roughly 92% in a year. The company carries a Zacks Rank #2 (Buy).
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Why You Should Retain CF Industries (CF) in Your Portfolio
CF Industries Holdings, Inc. (CF - Free Report) is well-placed to benefit from the rising nitrogen fertilizer demand in major markets and higher nitrogen prices amid headwinds from higher natural gas costs.
The company’s shares have rallied 131.5% over a year compared with the 57.5% rise of its industry.
Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
Image Source: Zacks Investment Research
Strong Nitrogen Demand & Prices Bode Well
CF Industries is gaining from strong nitrogen fertilizer demand. Global demand for nitrogen is expected to remain strong in 2022. Higher crop commodity prices are contributing to healthy demand globally. Industrial demand has also recovered from the pandemic-related disruptions.
The company, on its second-quarter call, said that it sees the global nitrogen supply-demand balance to remain tight for the foreseeable future, supported by resilient agricultural-led demand and uncertainty about global production and export supply availability. Energy spreads between low-cost producers and marginal production in Europe and Asia also expected to remain historically wide.
CF Industries expects nitrogen demand for industrial use in North America to be supported by mining activity. It also envisions India to tender on a regular basis into 2023 as higher domestic production is unlikely to fully meet increased demand as growers boost grain production. The company also envisions urea consumption in Brazil to remain strong this year, backed by high crop prices, expected high planted corn acres and improved farm incomes.
The company is also benefiting from higher nitrogen prices on the back of lower supply resulting from reduced operating rates globally due to higher energy prices. Higher nitrogen prices are driving its sales as witnessed in the last-reported quarter. The positive pricing environment is expected to continue moving ahead. Global nitrogen supply is expected to remain challenged due to higher energy prices and geopolitical factors.
CF Industries also remains committed to boosting shareholders’ value by leveraging strong cash flows. Its net cash provided by operating activities was $889 million for the second quarter, up nearly seven-fold year over year. The company repurchased around 6.6 million shares for $590 million during the first half of 2022.
Higher Natural Gas Costs a Worry
The company is facing headwinds from higher natural gas costs, stemming from an increase across Europe and Asia. The average cost of natural gas reflected in its cost of sales increased to $7.05 per million British thermal units (MMBtu) in the second quarter from $3.25 per MMBtu in the year-ago quarter. Gas costs are expected to remain elevated in Europe through the end of 2022 due to the uncertainties over the supply from Russia. High natural gas costs are expected to increase the company’s cost of sales.
CF Industries Holdings, Inc. Price and Consensus
CF Industries Holdings, Inc. price-consensus-chart | CF Industries Holdings, Inc. Quote
Stocks to Consider
Some better-ranked stocks worth considering in the basic materials space include Daqo New Energy Corp. (DQ - Free Report) , Albemarle Corporation (ALB - Free Report) and Sociedad Quimica y Minera de Chile S.A. (SQM - Free Report) .
Daqo New Energy, currently carrying a Zacks Rank #1 (Strong Buy), has an expected earnings growth rate of 177.5% for the current year. The Zacks Consensus Estimate for DQ's earnings for the current fiscal has been revised 20.8% upward in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Daqo New Energy’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, the average being 10.8%. DQ has gained around 4% over a year.
Albemarle has a projected earnings growth rate of 425.7% for the current year. The consensus estimate for ALB's current-year earnings has been revised 67.9% upward in the past 60 days.
Albemarle’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 24.2%, on average. ALB has gained around 9% in a year and currently carries a Zacks Rank #1.
Sociedad has a projected earnings growth rate of 520.5% for the current year. The Zacks Consensus Estimate for SQM’s current-year earnings has been revised 34% upward in the past 60 days.
Sociedad’s earnings beat the Zacks Consensus Estimate in two of the trailing four quarters, the average being 28.2%. SQM has rallied roughly 92% in a year. The company carries a Zacks Rank #2 (Buy).