Shares of CF Industries CF slipped to a new 52-week low of $24.76 last Friday, before closing the day higher at $25.43.
The fertilizer company’s shares have skid around 36% year to date. Also, the stock has lost roughly 58% over a year.
Factors to Consider
Although CF Industries remains on track with its capacity expansion projects, it continues to see pricing pressure in its nitrogen business. The company’s profits tumbled roughly 89% in first-quarter 2016, hurt by lower selling prices.
Higher supply in the global nitrogen market and softer global demand for ammonia put pressure on pricing in the quarter. Nitrogen prices are expected to remain under pressure in the near term due to elevated supply. Global capacity expansion continues to exert pressure on urea and other nitrogen fertilizer prices.
Moreover, the termination of the deal to buy specific assets of Netherlands-based fertilizers and industrial chemicals producer, OCI N.V. represents a setback for the company. CF Industries and OCI ended the planned combination of CF Industries with certain assets of OCI in May 2016 after the U.S. government’s new tax inversion rules scuppered the merger.
CF Industries, in Aug 2015, agreed to purchase the European, North American and global distribution assets of OCI N.V. in a deal worth around $8 billion. The companies amended their merger agreement in late 2015 and changed the jurisdiction of incorporation and tax residency of the proposed combined company to the Netherlands from the U.K. after the U.S. government took certain steps to crack down on tax inversions.
However, the U.S. Department of the Treasury announced additional actions to further curb corporate tax inversions in Apr 2016, aimed at reducing the economic benefits of inversion and slow the pace of inversion deals. CF Industries and OCI ended the merger as the Treasury actions “materially reduced” the structural synergies of the deal. The combined entity would have emerged as the world’s biggest publicly traded nitrogen company.
CF Industries also has a debt-laden balance sheet with long-term debt of roughly $5.5 billion at the end of the first quarter, up around 21% year over year. The company also faces intense pricing competition from both domestic and foreign fertilizer producers and volatility in raw material costs.
Zacks Rank & Stocks to Consider
CF Industries has a Zacks Rank #5 (Strong Sell). Better-ranked companies in the basic materials space include Innophos Holdings Inc IPHS, Albemarle Corporation ALB and Koninklijke DSM N.V. RDSMY, all sporting a Zacks Rank #1 (Strong Buy).
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