CF Industries (CF) Poised On Higher Demand Amid Pricing Woes

We issued an updated research report on fertilizer maker, CF Industries Holdings, Inc. (NYSE:CF) on Mar 25.

CF Industries is poised on gain from higher global demand for nitrogen fertilizer. Demand in North America is expected to be strong in the spring application season after a weak fall application season due to bad weather. The company expects a return to traditional planting conditions in the region to support a rise in nitrogen-consuming planted corn acres in 2020 on a year-over-year basis.

Moreover, CF Industries sees demand in Brazil to be favorable in 2020, backed by reduced domestic urea production and additional planted corn acres. It also anticipates demand to remain strong in India this year.

CF Industries is also benefiting from lower natural gas costs. It witnessed lower year-over-year natural gas costs in 2019, which supported its financial performance. The company expects natural gas cost advantage to continue in 2020, especially in the first half.

The company also remains committed to return value to shareholders leveraging strong cash flows. It generated operating cash flows of roughly $1.5 billion and free cash flow of $915 million in 2019. CF Industries also returned roughly $602 million to shareholders through dividend and share buybacks last year.

However, CF Industries faces challenges from lower product prices. It saw lower prices across all major products in the last reported quarter, hurting its top line. Greater global supply availability due to increased operating rates and lower global energy prices put pressure on product prices.

The company expects pricing weakness to continue through the first half of 2020. As such, lower year over year product prices are expected to continue to weigh on its results.

CF Industries’ shares are down 32.8% over a year, compared with 43.2% decline of its industry.

Zacks Rank and Stocks to Consider

CF Industries currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials space are Franco-Nevada Corporation (TSX:FNV) , NovaGold Resources Inc. (NYSE:NG) and Daqo New Energy Corp. (NYSE:DQ) .

Franco-Nevada has a projected earnings growth rate of 24.2% for 2020. The company’s shares have rallied roughly 46% in a year. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

NovaGold has a projected earnings growth rate of 11.1% for 2020. It currently carries a Zacks Rank #1. The company’s shares have surged roughly 90% in a year.

Daqo New Energy has a projected earnings growth rate of 336.1% for 2020. The company’s shares have shot up around 93% in a year. It currently carries a Zacks Rank #2 (Buy).

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