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CF Industries Holdings, Inc.’s CF shares have popped 13.9% over the past three months, outperforming the Zacks Fertilizers industry’s rise of 6.2%. It is well-positioned to benefit from higher nitrogen fertilizer demand in major markets, an uptick in nitrogen prices and lower natural gas costs.
We are positive about CF’s prospects and believe that the time is right for you to add the stock to the portfolio as it looks promising and is poised to carry the momentum ahead.
Let's see what makes CF stock an attractive investment option at the moment.
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CF’s Earnings Estimates Moving Up
Earnings estimates for CF have been going up over the past 60 days. The Zacks Consensus Estimate for 2024 has increased by 5.7%. The consensus estimate for 2025 has also been revised 2.1% upward over the same time frame. The favorable estimate revisions instill investor confidence in the stock.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Superior Return on Equity (ROE) for CF Stock
ROE is a measure of a company’s efficiency in utilizing shareholders’ funds. ROE for the trailing 12 months for CF Industries is 14.6%, above the industry’s level of 8.1%.
CF’s Stock Valuation Looks Attractive
CF’s 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 is currently trading at a trailing 12-month EV/EBITDA multiple of 6.99, cheaper compared with the industry average of 10.79.
Healthy Demand, Higher Prices & Lower Gas Costs Aid CF
CF Industries is benefiting from the rising global demand for nitrogen fertilizers, which is driven by significant agricultural demand. Industrial demand for nitrogen has also recovered from the pandemic-related disruptions. Global demand is expected to remain strong in the near future due to recovering industrial demand and farmer economics.
High levels of corn planted acres and low nitrogen channel inventories are expected to drive demand for nitrogen in North America. Demand for urea is also likely to remain strong in Brazil on higher corn acres. Demand in India is expected to be driven by favorable weather conditions for crop production.
Strong global nitrogen demand and reduced supply availability supported global nitrogen prices in the third quarter of 2024. CF, on its third-quarter call, said that it anticipates the global supply-demand balance to remain constructive, as inventories are believed to be below average globally while energy spreads remain significant between North America and high-cost production in Europe.
The company also stands to benefit from lower natural gas prices. It saw a decline in natural gas costs in the third quarter. The average cost of natural gas fell to $2.10 per MMBtu in the quarter from $2.54 per MMBtu in the year-ago quarter. The benefits of reduced gas costs are expected to continue in the fourth quarter.
Higher nitrogen prices are also expected to support the company’s top line. Per CF Industries, nitrogen prices globally were aided in the third quarter by strong global nitrogen demand and reduced supply availability due to natural gas shortages in Trinidad and Egypt, the absence of China from the urea export market and planned maintenance activities in the Middle East. CF gained from higher year over year average selling prices in the third quarter due to increased average selling prices for ammonia from lower global supply availability.