Fertilizer Stocks

CF Industries Holdings Inc Valuation – August 2016 $CF

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Stocks for Using A Benjamin Graham Value Investing Strategy – August 2016.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how CF Industries Holdings Inc (CF) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): CF Industries Holdings, Inc. is the manufacturer and distributor of nitrogen fertilizer and other nitrogen products. The Company’s nitrogen fertilizer products are ammonia, granular urea, urea ammonium nitrate solution (UAN) and ammonium nitrate (AN). Its other nitrogen products include diesel exhaust fluid (DEF), urea liquor, nitric acid and aqua ammonia, which are sold primarily to its industrial customers, and compound fertilizer products (NPKs). The Company’s segments include ammonia, granular urea, UAN, AN and Other. The Company’s ammonia segment produces anhydrous ammonia (ammonia), which is the concentrated nitrogen fertilizer product as it contains 82% nitrogen. Its granular urea segment produces granular urea, which contains 46% nitrogen. Its UAN segment produces UAN, which is a liquid fertilizer product with a nitrogen content that typically ranges from 28% to 32%. Its AN segment produces AN. Its Other segment includes DEF, urea liquor, nitric acid and NPKs.

CF Chart

CF data by YCharts

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Premium members can view a full ModernGraham valuation of the company and have access to download a PDF version of the valuation for easy reference. Recent valuations of the components of the Dow Jones Industrial Average are available for free members, including this one of Microsoft Corporation.  In addition, here is a post detailing what can be found within each individual company’s valuation.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of CF – August 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $6,350,130,514 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 4.36 Pass
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 61.94% Pass
6. Moderate PEmg Ratio PEmg < 20 8.84 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.52 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 4.36 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 2.13 Fail
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

CF value chart August 2016

EPSmg $2.94
MG Growth Estimate -2.92%
MG Value $7.84
Opinion Overvalued
MG Grade B-
MG Value based on 3% Growth $42.65
MG Value based on 0% Growth $25.00
Market Implied Growth Rate 0.17%
Current Price $26.00
% of Intrinsic Value 331.76%

CF Industries Holdings, Inc. qualifies for both the Defensive Investor and the Enterprising Investor. In fact, the company meets all of the requirements of both investor types, a rare accomplishment indicative of the company’s strong financial position. . The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings growth over the last five years. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $3.65 in 2012 to an estimated $2.94 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 0.17% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into CF Industries Holdings, Inc. revealed the company was trading above its Graham Number of $5.55. The company pays a dividend of $1.2 per share, for a yield of 4.6%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 8.84, which was below the industry average of 12.12, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-35.99.

CF Industries Holdings, Inc. performs fairly well in the ModernGraham grading system, scoring a B-.

Stage 3: Information for Further Research

CF charts August 2016

Net Current Asset Value (NCAV) -$35.99
Graham Number $5.55
PEmg 8.84
Current Ratio 4.36
PB Ratio 1.52
Current Dividend $1.20
Dividend Yield 4.62%
Number of Consecutive Years of Dividend Growth 6

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2016
Total Current Assets $3,374,000,000
Total Current Liabilities $773,000,000
Long-Term Debt $5,540,000,000
Total Assets $15,762,000,000
Intangible Assets $2,363,000,000
Total Liabilities $11,778,000,000
Shares Outstanding (Diluted Average) 233,500,000

Earnings Per Share History

Next Fiscal Year Estimate $0.08
Dec2015 $2.96
Dec2014 $5.42
Dec2013 $4.95
Dec2012 $5.72
Dec2011 $4.40
Dec2010 $1.07
Dec2009 $1.48
Dec2008 $2.43
Dec2007 $1.31
Dec2006 $0.12
Dec2005 -$0.14
Dec2004 $0.25
Dec2003 -$0.07
Dec2002 -$0.10

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $2.94
Dec2015 $4.48
Dec2014 $4.93
Dec2013 $4.30
Dec2012 $3.65
Dec2011 $2.46
Dec2010 $1.42
Dec2009 $1.41
Dec2008 $1.18
Dec2007 $0.47
Dec2006 $0.04
Dec2005 -$0.01
Dec2004 $0.04
Dec2003 -$0.05
Dec2002 -$0.03

Recommended Reading:

Other ModernGraham posts about the company

CF Industries Valuation – March 2016 $CF
10 Companies Benjamin Graham Would Invest In Today – March 2016
10 Most Undervalued Companies for the Defensive Investor – February 2016
10 Low PE Stocks for the Defensive Investor – February 2016
10 Undervalued Companies for the Defensive Dividend Stock Investor – February 2016

Other ModernGraham posts about related companies

Monsanto Company Valuation – January 2016 Update $MON
Mosaic Company Valuation – October 2015 Update $MOS
CF Industries Holdings Inc. Analysis – September 2015 Update $CF
Monsanto Company Analysis – September 2015 Update $MON
Mosaic Company Analysis – July 2015 Update $MOS
CF Industries Holdings Analysis – June 2015 Update $CF
Mosaic Inc. Quarterly Valuation – April 2015 $MOS
CF Industries Holdings Inc. Quarterly Valuation – March 2015 $CF
Mosaic Company Quarterly Valuation – January 2015 $MOS
CF Industries Holdings Inc. Quarterly Valuation – December 2014 $CF

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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