CF Industries: Does The CF Stand For Cash Flow?

UBS' John Roberts upgraded CF Industries Holdings, Inc. CF from Neutral to Buy, while increasing the price target from $22 to $28.

Secure, Strong Dividend

The analyst was impressed with CF Industries attractive and "secure 5.1% yield" dividend along with an attractive balance sheet and future projected cash flow. Since CF had about $2 billion in cash on hand and about $0.7 billion expected tax refund in 2017, the analyst believed CF Industries dividend wouldn't be compromised.

Roberts believed CF Industries would benefit from stabilizing nitrogen prices as "CF is a near pure-play on U.S. shale gas-based nitrogen fertilizers."

Chinese Coal-Based Competitors

CF margins have been based on CF's ability to beat out coal-based producers in China. The analyst warns, however, if CF's oil input prices rise while Chinese labor costs lower, CF Industries won't fare as well. The analyst would remain neutral under these circumstances as he viewed "at least as much upside in theses risks (in aggregate), as downside."

At time of writing, CF Industries traded at $24.98, up 5.4 percent Tuesday.