Morningstar | CF's Volumes Rebound After Late Start to Season; Raising FVE to $45 on Higher Nitrogen Forecast
CF Industries reported solid second-quarter results driven by a rebound in nitrogen volumes after weather-related delays for the planting season weighed on first-quarter results. We've updated our nitrogen price forecast to account for higher 2018 prices driven by lower Chinese exports. Our 2018 price forecast is now $240 per ton, up from $230. Separately, we've also updated our long-term price forecast to $240 per metric ton in real terms, up from $220, as we see a higher spread between natural gas prices in the U.S. versus prices in Europe and Asia. Finally, we've reduced our forecast for CF's nitrogen unit production costs to account for our lower medium-term natural gas price forecast.After updating our model, our fair value estimate for no-moat CF climbs to $45 per share from $30. For this change, $9 per share is due to our higher long-term nitrogen price forecast, $4 per share is due to our lower medium-term cost outlook for CF, and the remaining $2 is due to our higher near-term nitrogen price forecast.
After CF sold a record 5.5 million tons during the second quarter, first-half volumes were up 0.5% versus the first half of 2017. While we still forecast lower total production volumes for CF in 2018, the majority of the decline is due to planned plant turnarounds, which will reduce volumes during the second half of the year.
For more information on our nitrogen price outlook, please see our Aug. 3 note "Raising Our Long-Term Nitrogen Price Forecast on Reshaped Cost Curve."
CF Industries Holdings is a global fertilizer and chemical company. The company's principal nitrogen fertilizer products are anhydrous ammonia, granular urea, urea ammonium nitrate solution and ammonium nitrate. The company's other nitrogen products include diesel exhaust fluid, urea liquor, nitric acid and aqua ammonia, which are sold primarily to its industrial customers, and compound fertilizer products, which are solid granular fertilizer products for which the nutrient content is a combination of nitrogen, phosphorus, and potassium. The company serves its customers in North America through its production, storage, transportation and distribution network.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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