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CF Industries Up 19% in 3 Months: What's Driving the Stock?

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Shares of CF Industries Holdings, Inc. (CF - Free Report) have popped around 19% over the past three months, significantly outperforming the industry’s growth of roughly 3%.

CF Industries, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $11.5 billion and average volume of shares traded in the last three months was around 2,708.3K. The company has an expected long-term earnings per share growth rate of 6%.  

Let’s take a look into the factors that are driving this fertilizer company.


Driving Factors

Better-than-expected second-quarter performance and upbeat outlook for nitrogen demand and pricing have contributed to the rally in CF Industries’ shares. CF Industries saw its profits surge to $148 million or 63 cents per share in the second quarter from $3 million or a penny per share a year ago. Earnings per share topped the Zacks Consensus Estimate of 42 cents.

Net sales climbed around 16% year over year to $1,300 million in the quarter and surpassed the Zacks Consensus Estimate of $1,199 million. Sales were driven by higher sales volumes across most segments and increased average selling prices across all segments. The company achieved record sales volumes of 5.5 million tons in the quarter.

Earnings estimates for CF Industries have also moved north over the past month. Over this period, the Zacks Consensus Estimate for 2018 has increased by around 25% to $1.25. The Zacks Consensus Estimate for 2019 has also moved up 4.1% over the same timeframe to $1.76.

The Zacks Consensus Estimate for earnings for 2018 reflects an expected year-over-year growth of a staggering 600%. For 2019, earnings are expected to rise 41% year over year.

CF Industries benefits from higher nitrogen demand driven by healthy corn plantations and cyclical recovery in the nitrogen fertilizer industry. The company expects strong demand in Brazil through the remainder of 2018. It sees a year-over-year increase in urea imports to Brazil during the second half of 2018 partly owing to the expected lost production from the scheduled closure of two Petrobras urea plants in August.

Moreover, CF Industries is poised to benefit from higher prices of nitrogen fertilizers. Higher production costs across Europe and China coupled with reduced production due to the enforcement of environmental regulations in China tightened global nitrogen supply and demand balance and boosted nitrogen prices during first-half 2018. These factors are expected to continue to drive prices in the third quarter. The company also expects demand in Brazil and India to support global nitrogen prices through the balance of 2018.

Stocks to Consider

Stocks worth considering in the basic materials space include Celanese Corporation (CE - Free Report) , Huntsman Corporation (HUN - Free Report) and Air Products and Chemicals, Inc. (APD - Free Report) .

Celanese has an expected long-term earnings growth rate of 10% and a Zacks Rank #1 (Strong Buy). The company’s shares have gained around 18% in a year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntsman has an expected long-term earnings growth rate of 8.5% and a Zacks Rank #1. The company’s shares have rallied around 19% in a year.

Air Products has an expected long-term earnings growth rate of 16.2% and carries a Zacks Rank #2 (Buy). Its shares have gained roughly 13% over a year.

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