uploads///Forward EV to EBITDA

CF Industries Valuation Multiple versus Peers’


Aug. 18 2020, Updated 9:26 a.m. ET

Valuation multiple

In this part of our series, we’ll discuss the valuation multiples for CF Industries (CF) and compare with peers’ (XLB) such as PotashCorp (POT), Agrium (AGU), Mosaic (MOS), CVR Partners (UAN), and other agribusiness stocks.

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Forward EV-to-EBITDA

Given that CF Industries reported negative earnings in recent quarters, we’ll use the forward EV-to-EBITDA (enterprise value-to-earnings before interest, tax, depreciation, and amortization) for valuation purposes.

In the above chart, we see that CF Industries’ valuation multiple has gradually risen, from around 4x in 2012 to 12.9x as of December 26, 2017. Peers’ median valuation multiple also moved higher, from ~7x to 12.2x over the same period. This change indicates that, on average, the valuation for agribusiness stocks was relatively expensive over the five-year period.

In the chart above, we see that CF Industries was trading at a discount for most of the five-year period but gradually rose in the recent two years, and the current valuation multiple is slightly above the peers’ median.

Analyzing the valuation multiple

CF Industries is one of the largest nitrogen producers in the United States. The company is also located near a cheap natural gas source, which is abundantly available in the United States. Consequently, compared to several other players in the industry, CF Industries sits on the far left of the production cost curve, meaning it’s also one of the lowest-cost producers. So a rise in fertilizer prices might meaningfully boost margins for the company, which may explain why the company is trading at a premium.

Next, we’ll discuss analysts’ ratings and price targets for the company.


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