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A Look into Analysts’ Estimates for CF Industries’ EBITDA

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Operating margins

In the earlier part of this series, we discussed how CF Industries’ (CF) gross margins are estimated to contract in 2017. The estimated increase in sales may not translate into higher gross margins for the company. Let’s look at what analysts estimate for the company’s operating margins, or EBITDA[1. earnings before interest, tax, depreciation, and amortization] margins.

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Estimates

Analysts estimate CF Industries’ EBITDA to reach $302 million, which could grow slightly from $300 million in 1Q16. Its EBITDA margins could remain flat at 30% year-over-year if the company’s results were to match analysts’ estimates.

For fiscal 2017, analysts estimate CF Industries’ EBITDA to come in at ~$1.3 billion, which would represent significant growth $858 million. This significant growth in EBITDA could translate into margin growth from 29.8% to 23.2% year-over-year.

While the company’s gross margins are estimated to decline, its margins could recover in the coming year, indicating cost optimization at the operating level.

Margins contract

Over the five years that ended in 2016, CF Industries (CF) experienced significant margin contraction. This was a result of declining nitrogen fertilizer prices. Generally, lower prices are negative for players (MXI) such as CF Industries, PotashCorp (POT), Agrium (AGU), and Terra Nitrogen (TNH), which could translate to lower margins if production costs remain relatively high.

Next, we’ll discuss EPS estimates.

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