Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



CF Industries: All Pros and No Cons?

I've written before about the one fertilizer company that looks poised to weather any storm because of its strong fundamentals. But is CF Industries (NYSE: CF  ) totally free from weaknesses? No company is perfect, and only a detailed scrutiny can give us a clear picture.


  • Nitro king: CF Industries became the largest North American nitrogen producer after acquiring most of Terra Nitrogen (NYSE: TNH  ) . With demand for nitrogen rising much faster than that of potash and phosphate in the past few years, CF is in a better position than peers Mosaic (NYSE: MOS  ) and PotashCorp (NYSE: POT  ) that focus more on the other two nutrients.  
  • Prolific investments: A major part of CF's investments is going into ramping up nitrogen capacity by clearing the bottleneck at the ammonia plants that came along with the Terra acquisition. Apart from that, the company is wisely upgrading greater amounts of ammonia to higher-valued urea ammonium nitrate, or UAN, a strategy being aggressively pursued by UAN specialist CVR Partners (NYSE: UAN  ) as well.
  • Solid performance and shareholder value: CF reported record revenue and net profits in 2011. Its top and bottom lines have grown at compounded average rate of a mind-blowing 52.9% and 105.2%, respectively, over the past two years. The company also has a solid return on equity of 37.6%.
  • Excellent financials: CF is one of the few companies generating higher cash flows than net income. Its debt level seems manageable, too, with a total debt-to-equity ratio of 32.8%. With an interest coverage ratio of 18.8 and cash balances of $1.2 billion as of Dec. 31, the company can boast of solid financials.


  • Too aggressive: CF may have acted a little too fast by hedging nearly two-thirds of its estimated 2012 natural gas (its principal raw material) requirement by Dec. 31. Gas prices are currently almost half of what CF incurred in its last quarter. And a price change of $1 per million British thermal units would mean a change of roughly $156.3 million in the company's unrealized mark-to-market gain/loss (pre-tax). So CF has not only lost out on a huge opportunity of cashing in on the sharp dip in natural gas prices, but it also stands to incur potential losses on its derivative contracts if natural gas prices do not recover.
  • Low dividend: One would expect a financially sound company like CF to pay out high dividends. But CF's dividend payout ratio is just 4.5%, and it yields only 0.9%.



  • Fierce competition: The fertilizer industry has big and powerful players, with most undertaking major expansions. So CF has to consistently find ways of maintaining its market share.
  • Sensitive share prices: CF's share prices tend to get affected by any release of crop-related data or reports, resulting in a fair amount of volatility and uncertainty.
  • Cautious emerging markets: Delayed purchase by high-demand markets such as India and China could mean a slowdown in business for the company.

The Foolish bottom line
CF looks like a good package overall, but a lot also depends on how it tackles macroeconomic challenges. If you're looking for a can't-miss opportunity to own a stock with both stability and growth potential, take a look at The Motley Fool's free report on our Top Stock for 2012.

Fool contributor Neha Chamaria owns no shares of any of the companies mentioned in this article. The Motley Fool owns shares of CF Industries Holdings. Motley Fool newsletter services have recommended buying shares of PotashCorp. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (1) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 22, 2012, at 11:05 AM, cdb5556 wrote:

    UAN is unaffected by swings in nat gas, pays a great dividend, and benefits by being right in the "corn belt"..I like it better long-term.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1834425, ~/Articles/ArticleHandler.aspx, 10/26/2016 11:39:49 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 hours ago Sponsored by:
DOW 18,199.33 30.06 0.17%
S&P 500 2,139.43 -3.73 -0.17%
NASD 5,250.27 -33.13 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/26/2016 4:01 PM
CF $25.55 Up +0.01 +0.04%
CF Industries Hold… CAPS Rating: ****
MOS $24.82 Up +0.22 +0.89%
Mosaic CAPS Rating: ****
POT $16.78 Up +0.13 +0.78%
PotashCorp CAPS Rating: ****
TNH $104.56 Down -0.25 -0.24%
Terra Nitrogen CAPS Rating: ****
UAN $4.75 Down -0.38 -7.41%
CVR Partners CAPS Rating: ****