CF Industries Holdings, Inc. (NYSE:CF)

CAPS Rating: 4 out of 5

The Company is a manufacturers and distributors of nitrogen and phosphate fertilizer products in North America.

Recs

2
Player Avatar NovaTodd (38.75) Submitted: 7/26/2013 10:56:27 PM : Outperform Start Price: $177.94 CF Score: +26.78

CF Industries trades at a little less than six times FCF once you net out the cash on hand. That's awfully cheap for a company that generates superior returns on invested capital to most of its peers (e.g., POT, MOS and AGU), has grown free cash flow per share at a rate of about 30% over the past five years, and has been using a portion of its excess cash to opportunistically repurchase shares at depressed multiples.

With ~40% of nitrogen fertilizer still imported from overseas, there is room for growth even with additional capacity set to come on-board in North America between 2016 and 2018. CF will benefit from cost advantages vis-a-vis foreign competitors due to the lower costs of production in the US, not to mention lower transportation costs. On the latter point, the company is especially well positioned thanks to its strategically located facilities in the heart of the corn belt. This is also a bet that natural gas prices won't be revisiting the $6+ range again any time soon, although CF is hedged against rising prices.

Bottom line: at less than six times free cash flow, I'm comfortable with the risks here and will be looking for an opportunity to pick up shares in the next few weeks.

Member Avatar NovaTodd (38.75) Submitted: 7/29/2013 3:36:27 PM
Recs: 0

It's probably up today because of this cogent pitch. Who the hell is Dan Loeb, anyway?

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