The stock of CF Industries Holdings (NYSE:CF, 30-year Financials) shows every sign of being fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $47.16 per share and the market cap of $10.1 billion, CF Industries Holdings stock is estimated to be fairly valued. GF Value for CF Industries Holdings is shown in the chart below.
Because CF Industries Holdings is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 2.8% over the past three years and is estimated to grow 3.12% annually over the next three to five years.
Link: These companies may deliever higher future returns at reduced risk.
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company’s financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. CF Industries Holdings has a cash-to-debt ratio of 0.20, which which ranks worse than 75% of the companies in Agriculture industry. The overall financial strength of CF Industries Holdings is 4 out of 10, which indicates that the financial strength of CF Industries Holdings is poor. This is the debt and cash of CF Industries Holdings over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. CF Industries Holdings has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $4.2 billion and earnings of $1.86 a share. Its operating margin is 16.42%, which ranks better than 80% of the companies in Agriculture industry. Overall, GuruFocus ranks the profitability of CF Industries Holdings at 7 out of 10, which indicates fair profitability. This is the revenue and net income of CF Industries Holdings over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus’ research has found that growth is closely correlated with the long-term performance of a company’s stock. If a company’s business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. CF Industries Holdings’s 3-year average revenue growth rate is in the middle range of the companies in Agriculture industry. CF Industries Holdings’s 3-year average EBITDA growth rate is 16.2%, which ranks better than 68% of the companies in Agriculture industry.
Another way to evaluate a company’s profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, CF Industries Holdings’s ROIC was 5.78, while its WACC came in at 7.44. The historical ROIC vs WACC comparison of CF Industries Holdings is shown below:
In short, The stock of CF Industries Holdings (NYSE:CF, 30-year Financials) is estimated to be fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks better than 68% of the companies in Agriculture industry. To learn more about CF Industries Holdings stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
