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UPDATE: J.P. Morgan Downgrades CF Industries Holdings on Multiple Challenges Ahead

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UPDATE: Morgan Stanley Reiterates On CF Industries As Underperformance Should Begin To Reverse

In a report published Thursday, J.P. Morgan analyst Jeffrey J. Zekauskas downgraded the rating on CF Industries Holdings (NYSE: CF) from Overweight to Neutral, but reiterated the $210.00 price target.

In the report, J.P. Morgan noted, “CF's share price has approached our December 2014 price target of $210 and we are lowering our investment rating from Overweight to Neutral. We are also reducing our earnings estimate for CF from $24.35 to $22.85 for 2013 and from $22.40 to $19.20 for 2014. Our reductions in earnings estimates reflect lower price realizations in the nitrogen fertilizer market as additional urea supply from China has weakened supply/demand balances, the ammonia market has moved lower over the past months, and UAN demand at this juncture is soft with the domestic harvest late and its price pressured lower by weakness in urea. CF remains a company with strong potential free cash flow generation after it finishes its large capacity expansions by the middle of 2016. Free cash flow generation to that point is likely to be more limited: we estimate the free cash flow yield of CF to be negligible in 2014 and to be 2% in 2015 before rising to 7.4% in 2016 and perhaps 12% in 2017. Accordingly, CF is a stock whose potential free cash flow generation four years away is to a degree an anchor of its current valuation. A second recent anchor of the share price is the company's dividend policy. Taking a cue from public comments made by Third Point, CF recently increased its quarterly dividend from $0.40 to $1.00 or, annually, from $1.60 to $4.00.”

CF Industries Holdings closed on Wednesday at $212.55.

Posted-In: J.P. Morgan Jeffrey J. ZekauskasAnalyst Color Downgrades Analyst Ratings

 

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