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Why You Should Retain CF Industries (CF) in Your Portfolio

CF Industries Holdings, Inc. CF is well-placed to benefit from rising nitrogen fertilizer demand in major markets and higher nitrogen prices amid headwinds from higher natural gas costs.

The company’s shares have gained 18.8% in a year compared with the 3.9% rise of its industry.

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

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Higher Nitrogen Demand & Prices Bode Well

CF Industries is gaining from strong nitrogen fertilizer demand. Higher crop commodity prices are contributing to healthy demand globally. Industrial demand has also recovered from the pandemic-related disruptions. Higher industrial and economic activities and high levels of corn planted acres in the United States are likely to drive the demand for nitrogen.

The company, on its third-quarter call, said that demand for nitrogen continues to be driven by the need to replenish global grains stocks. It expects high crop futures prices and healthy farm economics to support high corn and wheat planted acreage in 2023 in North America. India is also forecast to tender for urea to fully meet higher demand as farmers boost grain production.

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 $990 million for the third quarter, up roughly 44% year over year. The company repurchased around 6.1 million shares for $532 million during the quarter. It also repurchased around 12.7 million shares for $1.12 billion during the first nine months of 2022. The company’s board has authorized a new $3 billion share repurchase program, which will commence upon completion of the existing share repurchase program and run through the end of 2025.

Higher Natural Gas Costs a Concern

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 $8.35 per million British thermal units (MMBtu) in the third quarter from $4.21 per MMBtu in the year-ago quarter. Gas costs are expected to remain elevated in Europe due to the uncertainties over the supply from Russia. High natural gas costs are expected to increase the company’s cost of sales in the fourth quarter.

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 worth considering in the basic materials space include Olympic Steel, Inc. ZEUS, Sociedad Quimica y Minera de Chile S.A. SQM and Commercial Metals Company CMC.

Olympic Steel currently sports a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for ZEUS's current-year earnings has been revised 4.8% upward in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

Olympic Steel’s earnings beat the Zacks Consensus Estimate in three of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 25.4%, on average. ZEUS has rallied around 31% in a year.

Sociedad has a projected earnings growth rate of 553.7% for the current year. The Zacks Consensus Estimate for SQM’s current-year earnings has been revised 3.6% upward in the past 60 days.

Sociedad has a trailing four-quarter earnings surprise of roughly 37.4%. SQM has rallied roughly 61% in a year. The company currently carries a Zacks Rank #1.

Commercial Metals currently carries a Zacks Rank #1. The consensus estimate for CMC's current-year earnings has been revised 8.7% upward in the past 60 days.

Commercial Metals’ earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 19.7%, on average. CMC has gained around 28% in a year.

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

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Olympic Steel, Inc. (ZEUS) : Free Stock Analysis Report

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Zacks Investment Research