What Makes CF Industries (CF) Stock a Solid Choice Right Now
Zacks Investment Research | Jul 07, 2021 05:41AM ET
CF Industries Holdings (NYSE:CF), Inc.’s industry . It has also outperformed the S&P 500’s roughly 15.9% rise over the same period.
Estimates Going Up
Earnings estimate revisions have the greatest impact on stock prices. Over the past two months, the Zacks Consensus Estimate for CF Industries for the current year has increased 67.7%. The consensus estimate for second-quarter 2021 has also been revised 50.5% upward over the same time frame.
Solid Growth Prospects
The Zacks Consensus Estimate for earnings for the current year for CF Industries is currently pegged at $3.94, reflecting an expected year-over-year growth of 168%. Moreover, earnings are expected to register an 84.3% growth in the second quarter.
Attractive Valuation
Valuation looks attractive as CF Industries’ shares are currently trading at a level that is lower than the industry average, suggesting that the stock still has upside potential.
Going by the EV/EBITDA (Enterprise Value/ Earnings before Interest, Tax, Depreciation and Amortization) multiple, which is often used to value fertilizer stocks, CF Industries is currently trading at trailing 12-month EV/EBITDA multiple of 9.37, cheaper than the industry average of 13.94.
Superior Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholder’s funds. ROE for the trailing 12-months for CF Industries is 7.2%, above the industry’s level of 6.1%.
Growth Drivers in Place
CF Industries is expected to gain from higher nitrogen fertilizer demand in major markets. Global nitrogen demand is expected to remain strong this year. Strong crop commodity prices are contributing to higher demand globally. Industrial demand has also recovered from the pandemic-related disruptions.
The company sees around 90-92 million planted corn acres in the United States in 2021. It also expects higher canola plantings in Canada to support nitrogen demand. Moreover, CF Industries projects higher nitrogen demand in North America for industrial uses. The company anticipates nitrogen requirements in other regions to remain strong this year, which is likely to be driven by strong demand for urea imports from India and Brazil.
CF Industries is also benefiting from higher nitrogen prices. The company’s average selling prices in the first quarter were higher on a year-over-year basis across most segments due to lower global supply availability. CF Industries expects nitrogen pricing to be positive in 2021 as global nitrogen supply and demand balance has been significantly tightened by low global coarse grains stocks-to-use ratios as well as higher energy prices in Asia and Europe. As such, higher nitrogen prices are expected to drive the company’s sales and bottom line.
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