CF Industries Shares Touch Record High: The Loeb Effect?

CF Industries Holdings, Inc. (NYSE:CF) caused a flutter on “Ag Day” at the Citi organized Basic Materials Conference when its presentation revealed that it was considering adopting a MLP structure as one of its financing options.

Here is the slide from its presentation:

CF Industries

In another slide the company said it was considering improving its dividends and expected to have significant additional cash flow available to give to shareholders:


CF Industries touches record high

The announcements electrified the staid fertilizer stock last week – on Wednesday it opened with a solid upside gap and touched a record high of $237.30.

It may be recalled that shareholder activist hedge fund Third Point LLC, headed by Dan Loeb, took issue with the company in July for its stingy dividend payments as well as poor stock performance compared to its peers in the agricultural industry.

“CF Industries Holdings, Inc. (NYSE:CF) currently trades at an unwarranted discount to fertilizer and commodity chemical peers. We believe its structural cash flow generation strength is misunderstood and that management should deliver a much larger dividend to its shareholders.” Third Point said. “Such a dividend would highlight the sustainability of its cash flow generation and lead to a substantial re-rating.”

Loeb’s efforts pay off

Third Point holds a 1.5% stake in the company. Loeb’s efforts obviously paid off because in October, CF Industries Holdings, Inc. (NYSE:CF) declared a quarterly dividend of $1, compared to $0.40 previously, up 150%.

Adding fuel to the fire last week was commencement of coverage of the stock by analysts at RBC Capital Markets who rated it as Sector Perform and assigned a PT of $235, stating “CF is considered a North American nitrogen pure play with leading leverage to the U.S. agriculture market, particularly corn, and a significant nitrogen capacity expansion under way. We forecast modestly lower nitrogen prices will lead to lower, although still strong, margins.”