CF Industries Holdings Inc (NYSE:CF) has recently experienced a daily gain of 4.36% and a 3-month gain of 30%. With an Earnings Per Share (EPS) of 12.08, investors wonder if the stock is fairly valued. In this article, we will conduct a detailed valuation analysis of CF Industries Holdings to provide valuable insights for potential investors.
CF Industries Holdings is a leading producer and distributor of nitrogen fertilizers. The company operates nitrogen facilities in North America and has joint venture interests in the United Kingdom and Trinidad and Tobago. It utilizes low-cost U.S. natural gas as its feedstock, making it one of the lowest-cost nitrogen producers globally. Additionally, CF Industries Holdings is investing in carbon-free blue and green ammonia as an alternative fuel to hydrogen or a means to transport hydrogen.
Currently priced at $82.66 per share, CF Industries Holdings has a market cap of $15.90 billion. The GF Value, which estimates the company’s fair value, is $89.07. This comparison sets the stage for a deeper exploration of the company’s value.
Summarizing the GF Value
The GF Value represents the current intrinsic value of a stock calculated based on historical trading multiples, the GuruFocus adjustment factor, and future estimates of business performance. In the case of CF Industries Holdings, the stock is estimated to be fairly valued based on the GuruFocus Value calculation. This means that the long-term return of the stock is likely to be close to the rate of its business growth.
Financial Strength
The financial strength of a company is an important factor to consider before investing. CF Industries Holdings has a cash-to-debt ratio of 0.99, which is better than 57.81% of companies in the Agriculture industry. GuruFocus ranks the overall financial strength of CF Industries Holdings at 7 out of 10, indicating fair financial strength.
Profitability and Growth
Consistent profitability is an attractive trait in companies. CF Industries Holdings has been profitable for 9 out of the past 10 years, with a revenue of $8.70 billion and an EPS of $12.08 over the past twelve months. The company’s operating margin of 41.09% ranks better than 95.63% of companies in the Agriculture industry. Overall, CF Industries Holdings boasts strong profitability, ranking 9 out of 10.
Growth is another crucial aspect in company valuation. CF Industries Holdings has shown impressive growth with a 3-year average annual revenue growth of 38.3%, outperforming 83.49% of companies in the Agriculture industry. Its 3-year average EBITDA growth rate of 53.9% ranks better than 84.13% of companies in the same industry.
ROIC vs WACC
Return on invested capital (ROIC) measures a company’s ability to generate cash flow relative to its invested capital. CF Industries Holdings has an ROIC of 28.16 over the past 12 months. The weighted average cost of capital (WACC) is the rate a company is expected to pay on average to all its security holders to finance its assets. CF Industries Holdings has a WACC of 10.19. This indicates that the company is likely creating value for its shareholders as its ROIC exceeds its WACC.
In conclusion, CF Industries Holdings (NYSE:CF) is estimated to be fairly valued with a fair financial condition and strong profitability. Its growth rate outperforms a significant portion of its industry. Investors looking for potentially above-average returns should consider CF Industries Holdings.
Definitions:
- Earnings Per Share (EPS): A company’s profit divided by the number of outstanding shares of common stock.
- Market Cap: The total value of all outstanding shares of a company’s stock.
- GF Value: An estimation of a company’s fair value calculated using a method developed by GuruFocus.
- Cash-to-Debt Ratio: The ratio of a company’s cash and cash equivalents to its total debt, indicating its ability to pay off its debt obligations.
- Interest Coverage: A measure of a company’s ability to cover its interest payments with its earnings before interest and taxes (EBIT).
- Operating Margin: The percentage of revenue remaining after deducting operating expenses.
- Return on Invested Capital (ROIC): A measure of how well a company utilizes its capital to generate profits.
- Weighted Average Cost of Capital (WACC): The average rate of return a company is expected to pay to its investors to finance its assets.
Sources:
– GuruFocus: https://www.gurufocus.com/
