Yahoo Finance Bear of the Day: CF Industries (CF)
CF Industries (CF) is a Zacks Rank #5 (Strong Sell) that manufactures and sells hydrogen and nitrogen products for energy, fertilizer, emissions abatement, and other industrial activities
The stock did well in 2022 as grain and fertilizer prices took off. However, CF has slumped over the last six months as prices have fallen significantly.
Inconsistent earnings have not helped and the stock is trading at 2023 lows after a recent earnings report. With analyst estimates falling further, investors could be in a rough spot in the back half of the year.
About the Company
CF Industries is headquartered in Deerfield, IL. The company was founded in 1946 and employs 2,700 people. Its principal products include anhydrous ammonia, granular urea, urea ammonium nitrate, and ammonium nitrate products. It primarily serves cooperatives, independent fertilizer distributors, traders, wholesalers, and industrial users.
CF isvalued at $13.5 billion and has a Forward PE of 8. The stock holds Zacks Style Scores of “A” in Value, but “D” in Momentum. The stock pays a dividend of 2.3%.
Q1 Earnings
The company reported Q1 earnings in early May, beating expectations by 8%. Revenues also came in above expected, but gross margins fell to 42.9% from 59.2% last year.
Management commented that despite the downward pressure in the global nitrogen marketcompared to last year, industry fundamentals remain positive.
The stock did spike on the headline number, but over the next few days, the stock made new monthly lows. This is not a good sign for investors and a reason for the drop is likely due to falling estimates.
Estimates
While the recent earnings report has seen a mix of revisions to estimates, the trend so far this year has been lower. Looking at analyst estimates over the last 90 days, we see a significant drop across the board.
For the current quarter, estimates have been taken down from $3.70 to $2.68, a drop of 27%. For the current year, they have fallen from $13.29 to $8.98, or 32%.
Next year’s numbers have seen a drop of 14%, but we have seen a small tick higher over the last 7 days.
Investors looking to buy the dip might have to wait until next year until the fundamental situation improves.
Technical Take
CF has been on a downward trend since December of 2022. Since then, the stock has dropped about 35%.
The 50-day moving average has been resistance multiple times since the stock started trending lower. This level, which is at $75.50, needs to break or the bears will continue to be in control.
Investors are likely tempted to buy the dip, but there could be room lower. While there is value in the name, long-term support looks to be in the $55-60 range. That is over 15% lower than current prices, so investors should be patient.
Summary
The fertilizer names are great to be in when agriculture prices are going higher. Unfortunately, the trend is going the wrong way and until estimates start improving investors should hold off.
For those interested in the space, a better option in the sector might be Sociedad Quimica Minera Chile SA(SQM). The stock is a Zacks Rank #3 (Hold) that pays a hefty dividend while investors wait out the negativity.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
CF Industries Holdings, Inc. (CF) : Free Stock Analysis Report
Sociedad Quimica y Minera S.A. (SQM) : Free Stock Analysis Report
