uploads///CFs and TNHs YTD Performance versus Benchmarks

Moody’s and S&P Downgrade CF Industries’ Credit Ratings

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Nov. 20 2020, Updated 4:23 p.m. ET

CF Industries

Negative news continues to flow for CF Industries (CF). Just when investors were hoping that the company reached the bottom cycle, it was hit by credit rating downgrades. The credit rating downgrades shouldn’t be a surprise. To learn more, read CF Industries Plants Seeds of Doubt in 2016 published on October 12.

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What did we highlight?

In the previously mentioned series, we stated that “selling prices (of fertilizers) impact CF Industries’ sales significantly. On average, prices peaked around 2011, which is also when sales peaked. However, as average prices declined over the years, CF’s sales moved in tandem.”

Falling sales as a result of price weakness complicated matters for CF Industries. Its gross margin fell over the years. It strained the company’s cashflows. We think that this planted seeds of doubt even in the minds of credit rating agencies such as Standard & Poor’s and Moody’s.

CF Industries’ performance

As of October 18, when we look at CF Industries’ performance so far this year, we see that the company lost almost 44% of its value YTD (year-to-date). It’s trading at $22.6. PotashCorp (POT) is trading 8.8% down, Agrium (AGU) is trading 1.1% down, and Mosaic (MOS) fell 19.7% YTD. The S&P 500 (SPY) and the VanEck Vector Agribusiness ETF (MOO) rose 5.7% and 2.1% YTD, respectively.

The dismal drop in the above companies’ value shows the weakening earnings. Also, the ongoing downward trajectory in the share price shows the weakness in near-term fundamentals being priced in.

In the next part, we’ll look at the credit rating downgrades for CF Industries and what they could mean.

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