CF Industries Shares Have 50% Upside, Says Bernstein Analyst

CF Industries Holdings, Inc. CF is likely to benefit from the continued recovery in nitrogen, an analyst at Bernstein said. The company is a pure-play nitrogen manufacturing company focused on the North American market.

The Analyst

Bernstein analyst Jonas Oxgaard initiated coverage of CF Industries with an Outperform rating and $60 price target, up about 44 percent from current levels.

The Thesis

The ongoing fertilizer recovery and the thesis that China's commitment to pollution control is permanent are the primary reasons behind Bernstein's positive take on CF Industries, Oxgaard said in a Tuesday note. 

Nitrogen prices are driven by energy prices and the intersection of demand and the cost curve, the analyst said. 

"The Chinese pollution control policy impacts both these things, through a higher coal price and through the closure of high-cost Chinese plants," which turns the demand intersection toward higher-cost producers, Oxgaard siad. 

The expectation that the Chinese focus on pollution control will continue bodes well for the ammonia outlook and stabilizes urea, the analyst said. 

This in turn leads to moderately higher U.S. ammonia and urea prices in 2018, suggesting higher earnings for CF Industries, Oxgaard said. 

Bernstein forecasts 2018 EBITDA of $1.7 billion, 28 percent better than the consensus, and earnings per share of $1.96, 140 percent above the Street estimate of 81 cents.

The research firm commended CF Ifor focusing on debt paydown and opportunistically acquiring assets at the bottom of the cycle, with excess cash returned to shareholders.

The Price Action

CF Industries shares were up about 26 percent over the past year through Tuesday. 

Shares were up 3.54 percent at $43.30 midday Wednesday.

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