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After CF Industries reported November results, we cut our quality score to 2.9 to reflect lower ratings for its management and competitive protection. We moved our recommendation from Buy to Watch. We have added the multi-year delay of the Blue Point ammonia project and the outage at the Yazoo City Complex to the list of risks we track. We also adjusted our expectations for how much profit the company makes on its investments and how much its core operations cost to run.
CF Industries reported revenue of about 1.86 billion dollars for the third quarter, which was higher than the 1.77 billion dollars analysts expected. However, earnings per share of $2.87 missed the $3 target. The stock fell about 4 percent following the report.
The core of the business remains its cost advantage. By using cheap North American natural gas to make nitrogen fertilizer, the company can often stay profitable even when global prices for its products shift. While the earnings miss is a small bump, the higher-than-expected sales suggest that demand for fertilizer remains steady as the company also works on its new low-carbon ammonia projects.
See the full quarter, and how our tracked metrics did
Source: 8-K filing
The company reports its latest results after the closing bell. Analysts expect earnings of about $3 per share, and the business has a recent track record of coming in ahead of those estimates. For a long-term owner, the numbers to watch are the prices the company is getting for nitrogen compared to what it pays for natural gas. This gap is the core of the business, as using cheap American fuel to make chemicals sold at global prices is what drives its profits. We will also look for any updates on the Blue Point project, which is the company's move into clean energy production.
UBS raised its target for the stock from $123 to $134 on Tuesday, though it kept its rating at neutral. This move puts the firm's target slightly above the average analyst estimate of $128. Analysts often adjust their targets just before a company reports its results to reflect the latest moves in fertilizer and natural gas prices. While the higher target suggests a bit more optimism about the stock's value, the neutral rating means the firm is not yet ready to recommend buying more shares at the current price.
Source: UBS
The company is scheduled to share its latest financial results after the market closes on November 4. Analysts will be looking for roughly 1.77 billion dollars in revenue and earnings of about 3.02 dollars per share. For a business that turns natural gas into fertilizer, the most important thing to watch is the gap between cheap American fuel and expensive global energy prices. This cost advantage is what allows the company to stay profitable even when global chemical prices shift, and the upcoming report will show how well that edge held up through the fall.
Management has missed expectations for two quarters in a row. This suggests the business is becoming harder to forecast as energy costs and global fertilizer prices shift more than they anticipated.
| Expectation | |
|---|---|
| EPS | $3.56 |
| Revenue | $2.01B |
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