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In this initial coverage research report, we examine CF Industries Holdings — CF 0.00%↑ — a materials sector enterprise, to see if it meets QualityValue Investing’s (QVI) Real-Time Stock Picks criteria based on our proprietary checklist analysis of the business’s current wealth and the share price’s present value.
CF Industries Holdings | Current Wealth
Value Proposition
CF Industries is a dividend-paying mid-cap stock in the materials sector’s fertilizers and agricultural chemicals industry.
CF Industries Holdings and its subsidiaries manufacture and sell hydrogen and nitrogen products for energy, fertilizer, emissions abatement, and other industrial activities in North America, Europe, and internationally. The company operates through the Ammonia, Granular Urea, UAN, AN, and Other segments. It primarily serves cooperatives, independent fertilizer distributors, traders, wholesalers, and industrial users. CF Industries Holdings, Inc. was founded in 1946 and is headquartered in Northbrook, Illinois, USA.
Economic Moat
Morningstar awards a narrow moat rating to CF Industries based on the company’s cost-advantaged nitrogen production. The feedstock cost is the most crucial determinant of a producer’s position in terms of pricing for nitrogen producers.
QVI’s Value Proposition Elevator Pitch for CF Industries
CF Industries is an asymmetric, low-cost producer of premium-priced fertilizers and agricultural chemicals.
QVI’s value proposition rating for CF Industries Holdings: Bullish.
Returns on Management
Revenue Growth and Net Profit Margin
As the table below shows, CF Industries Holdings’ trailing three-year annualized revenue growth was double-digit positive and aligned with the S&P 500’s topline growth of +17.40%. In contrast, the company’s negative revenue growth of -21.97% underperformed the broader market’s +16.80% increase for the most recently reported twelve months.
Further, CF Industries had a high-double-digit net profit margin from a 33.98% gross margin. In addition, it aligned with the S&P 500’s net profit margin of 21.20% from a higher gross margin of 54.10%.
Returns on Equity and Invested Capital
CF Industries’ senior management produced a return on equity, or ROE, above QVI’s targeted threshold while lagging behind the S&P 500’s elevated ROE of 56.70%.
Stock buyback programs can elevate ROE. For example, since CF Industries’ board of directors commenced its current $3 billion share repurchase program in the second quarter of 2023, the company has repurchased 20 million shares for approximately $1.55 billion. As of September 30, 2024, about $1.45 billion remained under the program, which expires in December 2025.
CF Industries’ return on invested capital, or ROIC, aligned with QVI’s threshold while lagging behind the broader market’s 23.90% return. In addition, the company’s ROIC exceeds its weighted average cost of capital, or WACC, demonstrating that its senior executives are adequate capital allocators. (Source of WACC: GuruFocus)
Owners’ Earnings
In an additional evaluation of fundamentals relative to shareholder value, CF Industries’ five-year trailing performance in owners’ earnings—comprising EPS growth and dividend rate growth annualized—was in the high double digits. This result represents a superior return rate for shareholders of a mid-cap materials producer. Notably, the one-year EPS growth registered a negative -41.30%.
QVI’s business fundamentals rating for CF Industries Holdings: Bullish.
Click or Pinchout to Expand
Next, we’ll examine the company’s enterprise downside risks, the stock price’s present value, including share price downside risks, and the investment thesis, all exclusive to Quality Value Investing’s premium (paying) subscribers.
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Unless noted, all data presented is sourced from Charles Schwab & Co., Yahoo Finance, and CF Industries Holdings as of the market close on January 21, 2025, and is intended for illustrative purposes only.
Disclosure: As of the writing of this research report, I/we hold no beneficial position in CF common shares in our family portfolio. I wrote this report myself, expressing my own opinions. I am not receiving compensation for it other than from subscriptions paid to Substack. I have no business relationship with any company whose stock is mentioned in this post.
Additional Disclosure: Quality Value Investing by David J. Waldron’s primary ticker research reports are for informational purposes only. The accuracy of the data cannot be guaranteed. Narrative and analytics are impersonal, meaning they are not tailored to individual needs nor intended for portfolio construction beyond his family portfolio, which is presented solely for educational purposes. David is an individual investor and author, not an investment adviser. Readers should always engage in independent research or due diligence and consider consulting a fee-only certified financial planner, a licensed discount broker/dealer, a flat-fee registered investment adviser, a certified public accountant, or a specialized attorney before making any investment, income tax, or estate planning decisions.
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