CF Industries (CF) Stock Falls on New IRS Tax Inversion Rules

CF Industries (CF) stock is declining, after the IRS revealed new rules to reduce the number of corporate inversions, which Citigroup warns could negatively impact CF Industries.
By Rachel Graf ,

NEW YORK (TheStreet) -- CF Industries  (CF) - Get Report stock is slumping 5.75% to $43.89 in late-afternoon trading on Friday, as Citigroup warns that the IRS's new rules meant to reduce the number of corporate inversions could negatively impact the company.

The Deerfield, IL-based fertilizer maker hopes to lower its taxes by getting a U.K. address through a proposed $5.4 billion acquisition of assets from Netherlands-based OCIBloomberg reports.

Specifically, the IRS rule "which limits a third country of domicile could be an impediment" because CF Industries is based in the U.S., OCI is based in the Netherlands and the new company would be based in the U.K., Citigroup analysts said in a note, Barron's reports.

"CF's share price will likely remain under pressure as this development compounds an already blurry setup" amid falling nitrogen-based fertilizer prices, BMO Capital Markets said in a note today, Bloomberg adds.

Under the deal, CF Industries had hoped to achieve about $500 million of after-tax cost savings, Bloomberg adds.

Separately, TheStreet Ratings team rates CF INDUSTRIES HOLDINGS INC as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

We rate CF INDUSTRIES HOLDINGS INC (CF) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its revenue growth. At the same time, however, we also find weaknesses including deteriorating net income, generally higher debt management risk and poor profit margins.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 19.3%. Since the same quarter one year prior, revenues slightly increased by 0.7%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • CF INDUSTRIES HOLDINGS INC's earnings per share declined by 25.6% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, CF INDUSTRIES HOLDINGS INC increased its bottom line by earning $5.29 versus $4.93 in the prior year. For the next year, the market is expecting a contraction of 24.9% in earnings ($3.97 versus $5.29).
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Chemicals industry and the overall market on the basis of return on equity, CF INDUSTRIES HOLDINGS INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • The company, on the basis of change in net income from the same quarter one year ago, has underperformed when compared to that of the S&P 500 and greatly underperformed compared to the Chemicals industry average. The net income has significantly decreased by 30.6% when compared to the same quarter one year ago, falling from $130.90 million to $90.90 million.
  • The debt-to-equity ratio of 1.36 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, CF maintains a poor quick ratio of 0.96, which illustrates the inability to avoid short-term cash problems.
  • You can view the full analysis from the report here: CF

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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