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CF Industries Hit With Double Downgrade On Nitrogen Pricing, Long-Term Demand Concerns

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CF Industries Hit With Double Downgrade On Nitrogen Pricing, Long-Term Demand Concerns

Fundamentals at CF Industries Holdings, Inc. (NYSE: CF) have improved significantly, but the fertilizer company could suffer a setback, according to Bank of America Merrill Lynch. 

The Analyst

BofA's Steve Byrne downgraded shares of CF Industries from Buy to Underperform and lowered the price target from $48 to $40.

The Thesis

Meaningful risks surround nitrogen prices in the second half of 2018 that could test the market's view of the slope of the recovery, Byrne said in a Thursday note. (See the analyst's track record here.) 

BofA projects that spot NOLA urea prices will drop from $258/st to $200/st over the next six months due to recovering Chinese production rates; the U.S. returning to a net export position in the summer fill season; tapering seasonal demand in the northern hemisphere; and lower international energy prices.

Longer-term, China's increased focus on fertilizer formulations could cause nitrogen fertilizer demand to decline on a multiyear basis, Byrne said.

Although maintaining a positive multiyear constructive view on the nitrogen industry, BofA said the timeframe for CF Industries generating about $5-plus per share in free cash flow is now pushed out beyond 2020. 

"Our new 2018-2019 EBITDA estimates are 5-10 percent below consensus ($2.5-$3 in FCF/shr) and our new $40 PO (was $48) is based on 10x (was 11.5x) our 2018E EV/EBITDA." 

The Price Action

CF Industries shares were up about 39 percent over the past year until Wednesday.

The stock was down 2.43 percent at $40.89 at the close Thursday.

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Latest Ratings for CF

DateFirmActionFromTo
Nov 2020Stephens & Co.UpgradesEqual-WeightOverweight
Nov 2020Morgan StanleyMaintainsEqual-Weight
Nov 2020Credit SuisseMaintainsOutperform

View More Analyst Ratings for CF
View the Latest Analyst Ratings

 

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Posted-In: Bank of America Merrill Lynch fertilizer Nitrogen Steve ByrneAnalyst Color Downgrades Price Target Analyst Ratings Best of Benzinga

Latest Ratings

StockFirmActionPT
HYMCBMO CapitalInitiates Coverage On
DEMorgan StanleyMaintains335.0
SBNYRaymond JamesMaintains138.0
CORTHC Wainwright & Co.Maintains32.0
CYBBFCitigroupDowngrades
View the Latest Analytics Ratings
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