Barclays Downgrades CF; Investors Have Fully Priced In Optimistic Rebound In Fertilizer Market

Shares of CF Industries Holdings, Inc. CF have gained almost 24 percent over the last three months. The gains have been driven by stronger urea prices and the election results, and CF Industries’ stock now appears to “fully price in an optimistic — but not unattainable — rebound in fertilizer market conditions,” Barclays’ Matthew J. Korn said in a report.

Korn downgraded the rating on the company from Overweight to Equal Weight, while raising the price target from $25 to $30.

Drivers Of Share Price

CF Industries’ shares have been driven by a surge in stronger urea prices due to capacity cuts overseas, higher global coal prices and lower US imports. Moreover, sentiment toward materials-related stocks turned positive after the U.S. election, Korn mentioned.

Following the big moves in steel and copper stocks, “investors have been looking for other, thematically similar stories with charts that don't look quite as vertical,” the analyst commented.

Fertilizer Market Conditions

Nitrogen prices have rebounded from the sharp downturn that severely impacted producer profitability. Korn pointed out, however, that the prices continue to be on “a slow path up from the trough.”

The indexes for NOLA Ammonia and UAN, both of which are important products for CF, continued to be 40 percent and 20 percent below their Q4 2015 averages, respectively, “and our new estimates reflect a more modest recovery into 2018,” the analyst added.

At last check, shares of CF were down 4.59 percent at $29.53.