We consider that CF Industries inventory (NYSE: CF) has an upside potential of 22% within the close
We consider that CF Industries inventory (NYSE: CF) has an upside potential of 22% within the close to time period. CF trades at $32 at the moment and it has misplaced 22% in worth year-to-date. It traded at a pre-Covid excessive of $39 in February and is 18% under that stage now. Additionally, CF inventory has gained 47% from the lows of $22 seen in March 2020, after the multi-billion greenback stimulus package deal introduced by the U.S. authorities which has helped the inventory market recuperate to a big extent. The inventory is lagging the broader markets (S&P 500 is up about 60%), as buyers are cautious in regards to the affect of financial uncertainty on the fertilizer business, basically.
The corporate is a World Chief in Nitrogen Fertilizer Manufacturing and Distribution. Regardless of the Covid-19 disaster, it has managed to conduct its operations easily and there was no significant affect in buyer demand both, as fertilizers and farming-related actions are categorized beneath important companies. CF reported a rise in Fertilizer gross sales quantity for the primary 9 months on a year-on-year foundation; nevertheless, its web gross sales have been down 15% as a result of a gradual third quarter pushed by the seasonal nature of fertilizer purposes within the Northern Hemisphere. Transferring ahead, the corporate is more likely to profit from increased nitrogen fertilizer demand in main markets – World nitrogen necessities are pushed by demand in India and Brazil. The corporate expects international nitrogen demand to stay optimistic within the second half of 2020 and into 2021. Regardless of some rise in CF inventory since late March, we consider that the inventory has room for development within the close to future. Our conclusion relies on our detailed evaluation of CF Industries’ inventory efficiency in the course of the present disaster with that in the course of the 2008 recession in an interactive dashboard evaluation.
2020 Coronavirus Disaster
- 12/12/2019: Coronavirus instances first reported in China
- 1/31/2020: WHO declares a worldwide well being emergency.
- 2/19/2020: Indicators of efficient containment in China and hopes of financial easing by main central banks helps S&P 500 attain a report excessive
- 3/23/2020: S&P 500 drops 34% from the height stage seen on Feb 19, as Covid-19 instances speed up exterior China. Doesn’t assist that oil costs crash in mid-March amid Saudi-led value struggle
- From 3/24/2020: S&P 500 recovers 62% from the lows seen on Mar 23, because the Fed’s multi-billion greenback stimulus package deal suppresses near-term survival nervousness and infuses liquidity into the system.
In distinction, right here’s how CF and the broader market carried out in the course of the 2007/2008 disaster.
Timeline of 2007-08 Disaster
- 10/1/2007: Approximate pre-crisis peak within the S&P 500 index
- 9/1/2008 – 10/1/2008: Accelerated market decline comparable to Lehman chapter submitting (9/15/08)
- 3/1/2009: Approximate bottoming out of the S&P 500 index
- 1/1/2010: Preliminary restoration to ranges earlier than the accelerated decline (round 9/1/2008)
CF Industries vs S&P 500 Efficiency Over 2007-08 Monetary Disaster
CF inventory declined from ranges of round $15 in October 2007 (the pre-crisis peak) to roughly $13 in March 2009 (because the markets bottomed out), implying that the inventory misplaced round 15% of its worth from its approximate pre-crisis peak. This marked a smaller drop than the broader S&P, which fell by about 51%.
Nevertheless, CF recovered strongly publish the 2008 disaster to about $18 in early 2010 – rising by 41% between March 2009 and January 2010. As compared, the S&P bounced again by about 48% over the identical interval.
CF Industries’ Fundamentals in Latest Years Look Sturdy
CF Industries revenues grew 7% from $4.Three billion in 2015 to $4.6 billion in 2019. Nevertheless, the corporate’s web revenue decreased from $734 million to $646 million over the identical interval, primarily pushed by increased price of gross sales and promoting, normal and administrative bills. The corporate’s Q3 2020 revenues have been 18% under the year-ago interval, and its EPS determine decreased from $0.29 to -$0.13.
Does CF Industries Have A Ample Money Cushion To Meet Its Obligations Via The Coronavirus Disaster?
CF Industries’ whole debt decreased from $5.eight billion in 2016 to $Four billion on the finish of Q3 2020, whereas its whole money decreased from $1.2 billion to round $553 million over the identical interval. The corporate generated round $941 million in money from its operations within the first three quarters of 2020, and it seems to be in place to climate the disaster.
CONCLUSION
Phases of Covid-19 disaster:
- Early- to mid-March 2020: Concern of the coronavirus outbreak spreading quickly interprets into actuality, with the variety of instances accelerating globally
- Late-March 2020 onward: Social distancing measures + lockdowns
- April 2020: Fed stimulus suppresses near-term survival nervousness
- Might-June 2020: Restoration of demand, with the gradual lifting of lockdowns – no panic anymore regardless of a gradual enhance within the variety of instances
- July-November 2020: Weak Q2 and Q3 outcomes, however continued enchancment in demand and progress with vaccine growth buoy market sentiment
Conserving in thoughts the trajectory over 2009-10, this implies a possible restoration to round $39 (22% upside) as soon as financial circumstances start to point out indicators of enhancing. This marks a full restoration to the $29 stage CF Industries’ inventory was at earlier than the coronavirus outbreak gained international momentum.
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The views and opinions expressed herein are the views and opinions of the writer and don’t essentially replicate these of Nasdaq, Inc.