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Here's Why You Should Retain CF Industries (CF) in Your Portfolio

CF Industries Holdings, Inc. CF is expected to benefit from healthy nitrogen fertilizer demand in major markets and lower natural gas costs. However, it is exposed to headwinds from lower nitrogen prices.

The company’s shares have gained 16.4% over a year compared with a 9.8% decline of its industry.


Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research


Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.


Strong Nitrogen Demand, Lower Gas Costs Aid CF

CF Industries is benefiting from rising global demand for nitrogen fertilizers, driven by significant agricultural demand. Industrial demand for nitrogen has also recovered from the pandemic-related disruptions.

The company expects global demand to remain strong in the near future due to recovering industrial demand and farmer economics. High levels of corn planted acres, low nitrogen channel inventories and favorable farm economics are expected to drive demand for nitrogen in North America. Demand for urea is also expected to remain strong in Brazil and India. Demand in India is expected to be driven by an uptick in domestic production on the back of higher operating rates and favorable weather conditions.

Lower natural gas prices will also act in the company’s favor. CF Industries witnessed a significant decline in natural gas costs in the first quarter of 2024. Average cost of natural gas fell to $3.19 per MMBtu in the quarter from $6.62 per MMBtu in the year-ago quarter. Lower natural gas costs led to a decline in the company's cost of sales. The benefits of reduced gas costs are expected to continue in the second quarter of 2024.

Moreover, CF remains committed to boosting shareholders’ value by leveraging strong cash flows. It generated net operating cash flows of $2.76 billion and a free cash flow of $1.8 billion in 2023. It repurchased around 7.9 million shares for $580 million during 2023. CF returned roughly $900 million to shareholders through dividends and share buybacks in 2023. In the first quarter of 2024, the company repurchased 4.3 million shares for $347 million. The current $3 billion share repurchase program had around $2.2 billion remaining at the end of the first quarter. The company, earlier this year, also announced a 25% increase in quarterly dividend to 50 cents per share.

Lower Nitrogen Prices a Concern

CF Industries faces headwinds from softer nitrogen prices. Global nitrogen prices have declined since the beginning of 2023. Higher global supply availability driven by higher global operating rates due to lower global energy costs has resulted in a decline in prices. Lower average selling prices weighed on CF's top line in the first quarter. Selling prices fell in the quarter as decreased global energy costs reduced the global market clearance price required to meet global demand. The weak pricing environment is expected to continue over the near term. Lower pricing is likely to continue weighing on CF’s sales and margins.



CF Industries Holdings, Inc. Price and Consensus


CF Industries Holdings, Inc. Price and Consensus
CF Industries Holdings, Inc. Price and Consensus

CF Industries Holdings, Inc. price-consensus-chart | CF Industries Holdings, Inc. Quote


Stocks to Consider

Better-ranked stocks in the basic materials space include Axalta Coating Systems Ltd. AXTA, Carpenter Technology Corporation CRS and ATI Inc. ATI.

Carpenter Technology currently carries a Zacks Rank #1 (Strong Buy). CRS beat the Zacks Consensus Estimate in three of the last four quarters while matching it once, with the average earnings surprise being 15.1%. The company’s shares have soared roughly 139% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Axalta Coating Systems, carrying a Zacks Rank #1, has a projected earnings growth rate of 26.8% for the current year. In the past 60 days, the consensus estimate for AXTA's current-year earnings has been revised upward by 5.9%. The company’s shares have gained roughly 17% in the past year.

ATI currently carries a Zacks Rank #1. ATI beat the Zacks Consensus Estimate in each of the last four quarters, with the average earnings surprise being 8.3%. The company’s shares have rallied around 63% in the past year.

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ATI Inc. (ATI) : Free Stock Analysis Report

CF Industries Holdings, Inc. (CF) : Free Stock Analysis Report

Carpenter Technology Corporation (CRS) : Free Stock Analysis Report

Axalta Coating Systems Ltd. (AXTA) : Free Stock Analysis Report

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