CF Industries Holdings (CF) is one of the largest producers of nitrogen fertilizer, with a stronghold in the North American market. The company’s strategic location puts it at an advantage to deliver nitrogen products at lower costs.
Over the past ten-year period, CF Industries has risen 186.0% and significantly outperformed the S&P 500 Index’s rise of 69.2% over the same period. In the above chart, we see that the stock took a deep dive in 2008 and 2015. While the 2008 fall was due to the financial crisis, the 2015 fall was a result of an industry-specific weakness.
CF Industries also distributes dividends. Over the last ten years, its dividend yield rose from 0.29% to 3.7% in 2017. In the recent five-year period, the stock has fallen 17.8% and underperformed the S&P 500 and its peers.
Unlike the potash and phosphate fertilizer markets, which are consolidated and include players such as PotashCorp (POT) Mosaic (MOS), and Israel Chemicals (ICL), the nitrogen fertilizer market is more fragmented. That’s because the raw materials—natural gas, anthracite coal, pet coke—required to produce nitrogen fertilizers are readily available all around the globe.
The company’s strategic positioning in the United States (NANR) hasn’t been enough to deliver solid earnings growth. Abundant supplies in other parts of the world have made its way to the North American continent, thus lowering the prices of nitrogen fertilizers and impacting CF’s price realization.
CF Industries is one of the lowest-cost producers of nitrogen fertilizers in the world. It uses natural gas as an input material, which is abundant and cheap in the United States. In addition, the United States remains a net importer of nitrogen fertilizers, giving a further cost advantage to the company by eliminating transportation costs. The company is positioned well to take advantage of any price increases in nitrogen fertilizers.
To know more, read our series An In-Depth Analysis of CF Industries and Its 2017 Outlook.