CF Industries Holdings, Inc.’s CF shares have gained 26% in the past three months, outperforming the Zacks Fertilizers industry’s rise of 4.7%. CF benefits from higher nitrogen fertilizer demand in major markets and lower natural gas costs.

Technical indicators show that CF has been unremittingly trading above the 50-day simple moving average (SMA) since early August 2024. CF also reached a key technical milestone, with the 50-day SMA crossing above the 200-day SMA on Sept. 24, 2024, signaling an uptrend.

CF Stock Trades Above 50-Day SMA

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Is the time right to buy CF’s shares for potential upside? Let’s take a look at the stock’s fundamentals.

CF Gains on Healthy Nitrogen Demand & Lower Gas Costs

CF Industries is benefiting from the rising global demand for nitrogen fertilizers, driven by significant agricultural demand. Industrial demand for nitrogen has also recovered from the pandemic-related disruptions. Global demand is expected to remain strong in the near future due to recovering industrial demand and farmer economics. 

High levels of corn planted acres and low nitrogen channel inventories are expected to drive demand for nitrogen in North America. Demand for urea is also likely to remain strong in Brazil and India. Demand in India is expected to be driven by an uptick in domestic production due to higher operating rates and favorable weather conditions.

CF, on its second-quarter call, said that it anticipates the global supply-demand balance to remain positive over the near term, driven by nitrogen import requirements for Brazil and India until the end of the year, as well as sustained wide energy spreads between North America and high-cost production in Europe.

CF also stands to benefit from lower natural gas prices. It witnessed a decline in natural gas costs in the second quarter of 2024. The average cost of natural gas fell to $1.90 per MMBtu in the quarter from $2.75 per MMBtu in the year-ago quarter. Lower natural gas costs led to a decline in the company's cost of sales. The benefits of reduced gas costs are expected to continue in the third quarter.

CF Industries Remains Focused on Capital Allocation

CF remains committed to boosting shareholders’ value by leveraging strong cash flows. The company repurchased 8.3 million shares for $652 million in the first half of 2024, including 4 million shares for $305 million in the second quarter. CF generated net cash from operating activities of $475 million in the second quarter and ended the quarter with cash and cash equivalents of roughly $1.8 billion.

The current $3 billion share repurchase program had around $1.9 billion remaining at the end of the second quarter. CF returned $832 million through dividends and share repurchases during first-half 2024. Earlier this year, the company also announced a 25% increase in quarterly dividend to 50 cents per share.

CF offers a dividend yield of 2.3% (above the S&P 500′s average dividend yield of roughly 2%) at the current stock price. Its payout ratio is 35% (a ratio below 60% is a good indicator that the dividend will be sustainable) with a five-year annualized dividend growth rate of 11.6%. Backed by strong financial health, the company's dividend is perceived to be safe and reliable.

CF Industries’ Earnings Estimates Going Up

The Zacks Consensus Estimate for 2024 for CF has been revised upward over the past 60 days. The consensus estimate for the third quarter of 2024 has also been revised higher over the same time frame.

Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

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CF’s Stock Valuation Looks Stretched

CF Industries is currently trading at a forward 12-month earnings multiple of 15.47X, a roughly 16.3% premium to the peer group average of 13.3X, and higher than its five-year median.

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CF Stock Outperforms Industry

CF’s shares have gained 10.9% year to date, outperforming the industry’s 12.6% decline while underperforming the S&P 500’s rise of 20%. Its major fertilizer peers, The Mosaic Company MOS, Nutrien Ltd. NTR and Intrepid Potash, Inc. IPI have lost 24.2%, 11.5% and 0.5%, respectively, over the same period.

CF’s YTD Stock Price Performance

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Final Thoughts: Buy CF Shares

CF presents a compelling investment case backed by favorable demand fundamentals and rising earnings estimates. It is well-positioned to capitalize on the rising nitrogen fertilizer demand in major markets aided by supportive agricultural fundamentals. Lower natural gas prices also act in its favor. The company’s solid financial health also allows it to drive shareholder value. We recommend that investors add this Zacks Rank #2 (Buy) stock as it has upbeat prospects.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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CF Industries Holdings, Inc. (CF) : Free Stock Analysis Report

The Mosaic Company (MOS) : Free Stock Analysis Report

Intrepid Potash, Inc (IPI) : Free Stock Analysis Report

Nutrien Ltd. (NTR) : Free Stock Analysis Report

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