Despite softness in global nitrogen prices, CF Industries Holdings, Inc. CF reported strong second-quarter results.
While nitrogen prices may decline further in the back half of 2019, the company is likely to perform better in 2020 than was earlier expected, according to Bank of America.
The Analyst
BofA’s Steve Byrne upgraded CF Industries Holdings from Underperform to Neutral while raising the price target from $38 to $56.
The Thesis
Despite flat-to-declining global nitrogen prices, CF Industries Holdings was able to deliver a second-quarter earnings beat by selling more high-margin urea and capturing higher U.S. inland price premiums, Byrne said in the note.
He added that the company also benefited from a 24% sequential decline in natural gas costs.
Current corn prices could result in a significant increase in global corn acres, which could offset the expected decline in U.S. corn crop, Byrne mentioned.
The analyst raised the EPS estimate for 2020 from $1.84 to $2.93, citing “better expectations for natural gas costs, higher N pricing, lower fixed costs, and a lower share count.” He added that the BofA estimates for the second quarter and 2019 appear “too pessimistic” and that the company seems to have “a clearer earnings path moving into 2020.”
Price Action
Shares of CF Industries declined more than 4.8% to $50.09 at time of publishing on Monday morning.
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