Investing.com -- Shares of CF Industries (NYSE:CF) dropped 4% after receiving downgrades from JPMorgan and Scotiabank (TSX:BNS), signaling a bearish outlook from analysts on the company's future performance.
JPMorgan's Jeffrey Zekauskas changed the firm's stance on CF Industries from Neutral to Underweight, setting a new price target at $75, down from $82. The downgrade was primarily attributed to concerns over potential increases in domestic natural gas prices, which could impact earnings estimates for the coming years and affect the cost of producing nitrogen fertilizers, a key product for CF Industries. Zekauskas highlighted the risks, stating, "We think there is more downside risk than upside appreciation potential in the shares for CF shares at current price levels."
The analyst also pointed out the possibility that an increase in corn planted acres in the United States for 2025 might pressure corn prices. Geopolitical conflicts in Europe and changes in trade could further exacerbate pessimism regarding the US grain supply and demand balance. With CF Industries trading at a multiple higher than its historical average, the analyst believes the current valuation does not justify the potential risks.
Scotiabank followed suit, downgrading CF Industries to sector underperform from sector perform, with a price target of $88. Analyst Ben Isaacson expressed growing conviction that nitrogen margins could face pressure soon, which would likely affect companies focused solely on nitrogen.
The downgrades suggest that industry analysts are anticipating a challenging period ahead for CF Industries, particularly in terms of input costs and market dynamics that could squeeze margins. As the market prices in these concerns, investors have reacted by pulling back from the stock, reflecting the more cautious stance of the analysts.
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