CF Industries Holdings, Inc. CF is expected to gain from higher demand for nitrogen fertilizers and lower natural gas costs amid headwinds from weaker product prices.
Shares of the fertilizer maker are down 27.4% year to date compared with 8.2% decline of its industry.
Let’s delve deeper to find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
What’s Aiding CF?
CF Industries should benefit from higher nitrogen fertilizer demand in major markets in 2020. The company expects global nitrogen demand to remain positive in the second half of 2020 and into 2021. Global nitrogen requirements are driven by demand in India and Brazil.
Favorable weather and domestic stimulus are driving urea consumption in India. Demand for urea imports into Brazil also remains favorable, partly supported by improved farm incomes. The company expects total urea imports into Brazil to surpass 6.5 million metric tons in 2020.
Low natural gas costs have also been an advantage for CF Industries. The company is enjoying the benefits of access to low cost and abundant North American natural gas supply. It saw lower year-over-year natural gas costs in the first half of 2020, supporting its margins. The natural gas cost advantage is expected to continue for the remainder of 2020.
Weak Pricing a Worry
CF Industries is exposed to headwinds from lower nitrogen prices. Lower product prices hurt its revenues and margins in the second quarter. Average selling prices in the quarter were lower on a year-over-year basis across all segments.
Prices were affected by greater global supply availability due to increased global operating rates. Moreover, lower global energy prices put pressure on product prices. Pricing weakness is likely to continue in the third quarter. As such, lower year over year product prices are expected to continue to weigh on the company’s results.
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 stocks worth considering in the basic materials space include AngloGold Ashanti Limited AU, Barrick Gold Corporation GOLD and Eldorado Gold Corporation EGO.
AngloGold Ashanti has a projected earnings growth rate of 124.2% for the current year. The company’s shares have shot up roughly 42% 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.
Barrick Gold has a projected earnings growth rate of 80.4% for the current year. The company’s shares have rallied around 59% in a year. It currently has a Zacks Rank #1.
Eldorado Gold has an expected earnings growth rate of 2,325% for the current year. The company’s shares have gained around 42% in the past year. It currently carries a Zacks Rank #2 (Buy).
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