Analysts at Citi Research upgraded their rating for the shares of CF Industries Holdings, Inc. (NYSE:CF) to buy with a $240 price target after their recent trip to China. They noted that the further decline of prices for nitrogen fertilizers are limited.
Declining operating rates in China
According to Citi Research analysts, P.J. Juvekar and Daniel Jester, the price of nitrogen was weak in 2013. The price of ammonia and urea dropped by 20 percent to 30 percent during the year, however, they noticed a supply-side response due to the declining operating rates in China, and the capacity shutdown in high-cost regions in Europe.
Up-and-Coming Small- and Mid-cap Portfolio Managers #MICUS (Morningstar Conference)
Notes from Laird Bieger of Baron Capital, Mark Wynegar of Tributary Capital Management, and Amy Zhang of Alger Funds' presentation from the 2020 Monringstar Investment Conference. Q2 2020 hedge fund letters, conferences and more Up-and-Coming Small- and Mid-cap Portfolio Managers Our manager research team has been publishing its semiannual Morningstar Prospects report for several years. Read More
In a note to investors, Juvekar and Jester said the global price of nitrogen bottomed. They observed the current price of urea at ~$285/mt in China and ~50 percent of the country’s capacity are operating at or below breakeven for exports, with production rates beginning to drop. According to them, “While overall exports are expected to increase by ~1mmt Y/Y, we think much of this is factored into current prices. Plus, multiple companies we met with in China think the coal prices are unlikely to fall much further, which should offer some cost support.”
CF Industries to improve S&D dynamics
Juvekar and Jester believed that CF Industries Holdings, Inc. (NYSE:CF) is poised to improve its S&D dynamics next year. According to the analysts, the investors of the company will focus on expansions in 2014. They estimated that the company’s two major brownfield expansions will contribute $8 of EPS by 2016 to 2017.
In addition, the analysts believed that Tony Will, chief executive officers of CF Industries Holdings, Inc. (NYSE:CF), will be able to implement some strategies to increase the value for shareholders over the long-term. Juvekar and Jester identified some strategies such as increasing leverage for accelerating shares buyback and dividends. They also suggested that the company could review using its MLP structure for a new expansion starting in 2016.
In July, hedge fund manager Daniel Loeb anticipated that CF Industries Holdings, Inc. (NYSE:CF) might distribute higher dividends. He also pointed out that the shares of the company are at an “unwarranted discount” compared with its peers in the fertilizer and commodity chemical sector.