CF Industries Price Target Cut On Slipping Nitrogen Prices

UBS has cut the estimates and price target of CF Industries Holdings, Inc. CF to reflect the OCI Partners LP OCIP merger deal termination and slightly lower nitrogen prices.

UBS slashed its 2016/2017 EPS estimate to $1.85/2.10 from $2.27/3.25 and new EBITDA forecast is $1.6 billion/$1.8 billion (versus prior $1.7 billion/$2.6 billion).

"While demand was strong during the planting season as farmers planted more corn acres versus last year, we believe nitrogen prices will remain under pressure in the near-term a slower global feedstock costs and new capacities impact selling prices," analyst John Roberts wrote in a note.

NOLA urea prices hit a low of $175–180/ton at the start of this year, but prices strengthened to $230–$250/ton a few months later. Prices have since returned around the January lows, now in the $175-185/ton range once more.

Related Link: Goldman On CF Industries: Waiting On The Sidelines

The analyst said, "Recent weakness is viewed as being transitory due to shipments arriving in the US post-planting, creating a temporary inventory imbalance. NOLA prices are expected to be in the $190–210/ton in the near term."

"While near-term capacity additions in N. America will pressure the domestic market, we expect global nitrogen capacity additions to slow significantly after 2017," Roberts highlighted.

In addition, the analyst expects CF to restart share buybacks, due to its 2.7 billion cash position. Roberts, who maintains his Neutral rating on CF, forecast the company to repurchase about $300 million of shares in the second half of 2016.

The analyst also cut his price target to $29.00 from $33.00, while shares closed Wednesday's regular trading session at $27.68.