We rate fertilizer maker CF Industries Holdings (NYSE: CF - News) a Buy, as strong domestic and international grain markets have produced an exceptionally high global demand for fertilizer, translating into substantially higher selling prices for all its products. The company is particularly optimistic about its phosphate segment since both domestic and export demands remain strong.
The phosphate market will remain tight next year based on healthy offshore demand growth in India and Brazil, as well as higher application rates in the U.S. Moreover, low stocks, new demand for corn that created the largest corn crop since 1944, significantly increased acreage and fertilizer application rates have positive impact on phosphate prices. This is likely to lead to higher price and cash margins for various fertilizers.
Currently, CF Industries Holdings is valued at 9.8x our 2008 estimate of $13. The demand for fertilizer has been driven by a confluence of events, including population growth, shrinking world grain stocks and the appetite for corn and palm oil used to make biofuel. The company has leading market share in many key fertilizers and should benefit from its position in the demand-driven market. We have a price target of $140 on the stock, which is 10.8x our 2008 estimate. Zacks.com
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