Despite a daily loss of 1.66%, CF Industries Holdings Inc (CF, Financial) has registered a three-month gain of 21.66%. With an Earnings Per Share (EPS) of 12.08, the stock appears to be modestly undervalued. This article will delve into a comprehensive valuation analysis to determine the intrinsic value of CF Industries Holdings.
Company Overview
CF Industries Holdings is a leading global producer and distributor of nitrogen fertilizers. Operating seven nitrogen facilities in North America, the company also holds joint venture interests in the United Kingdom and Trinidad and Tobago. Leveraging low-cost U.S. natural gas as its feedstock, CF Industries Holdings has positioned itself as one of the lowest-cost nitrogen producers worldwide. The company is also investing in carbon-free blue and green ammonia, an alternative fuel to hydrogen or a means to transport hydrogen.
GuruFocus has detected 3 Warning Signs with CF Industries Holdings Inc CF.
CF 30-Year Financial Data
The intrinsicvalue of CF
Peter Lynch Chart of CF
At its current price of $81.39 per share, CF Industries Holdings has a market cap of $15.70 billion. The GF Value, an estimation of fair value, is $92.09, indicating that the stock is modestly undervalued. The following analysis will provide a deeper understanding of the company’s value.
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Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on three factors: historical multiples that the stock has traded at, a GuruFocus adjustment factor based on the company’s past returns and growth, and future estimates of the business performance. The GF Value Line on our summary page gives an overview of the fair value that the stock should ideally be traded at.
Based on the GF Value calculation, CF Industries Holdings appears to be modestly undervalued. If the price of a stock is significantly above the GF Value Line, it is overvalued and its futre return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Therefore, with CF Industries Holdings being relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Hence, it’s crucial to review a company’s financial strength before deciding whether to buy shares. CF Industries Holdings has a cash-to-debt ratio of 0.99, which ranks better than 57.87% of companies in the Agriculture industry. Based on this, GuruFocus ranks CF Industries Holdings’s financial strength as 7 out of 10, suggesting a fair balance sheet.
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Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. C Industries Holdings has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $8.70 billion and Earnings Per Share (EPS) of $12.08. Its operating margin is 41.09%, which ranks better than 95.63% of companies in the Agriculture industry. Overall, the profitability of CF Industries Holdings is ranked 9 out of 10, indicating strong profitability.
Growth is probably the most important factor in the valuation of a company. The 3-year average annual revenue growth of CF Industries Holdings is 38.3%, which ranks better than 83.49% of companies in the Agriculture industry. The 3-year average EBITDA growth rate is 53.9%, which ranks better than 83.5% of companies in the Agriculture industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to allits security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, CF Industries Holdings’s ROIC is 28.16 while its WACC came in at 9.81.
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Conclusion
In conclusion, the stock of CF Industries Holdings shows every sign of being modestly undervalued. The company’s financial condition is fair, and its profitability is strong. Its growth ranks better than 83.5% of companies in the Agriculture industry. To learn more about CF Industries Holdings stock, you can check out its 30-Year Financials here.
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