How CF Industries’ Valuation Changed in the Past Month
CF Industries’ valuation
In the past month, CF Industries’ (CF) stock price rose nearly 20% month-over-month as of September 28. The higher price movement also pushed the company’s valuation higher. In this part of the series, we’ll discuss CF Industries’ valuation. We’ll compare its valuation with peers’ median valuation multiple.
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While the PE (price-to-earnings) multiple is popular among investors and analysts, it can’t be used for CF Industries. The company is expected to have negative earnings. Since earnings are the denominator in the PE ratio, negative earnings render it useless.
We’ll use another valuation measure—the EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple. We’ll use the forward EV-to-EBITDA multiple since investing is always forward-looking.
As of September 28, CF Industries was trading at a forward EV-to-EBITDA multiple of 16.9x, which was significantly higher than the company’s historical levels. On average, the company has traded at a forward EV-to-EBITDA multiple of 13x.
You can compare CF Industries’ forward EV-to-EBITDA multiple to the median forward EV-to-EBITDA multiple for its peers (MOO) like PotashCorp (POT), Agrium (AGU), Mosaic (MOS), and Intrepid Potash (IPI). In the past, the peers’ median was 13x.
CF Industries’ increased capacity in a location like North America, which is a net importer of nitrogen fertilizers, might have pushed the company’s valuation higher.
In the next part, we’ll discuss analysts’ view on CF Industries in the next 12-month period.