Don't Expect CF Industries (CF) Stock to Rally Anywhere Above $40
NEW YORK (TheStreet) -- CF Industries Holdings (CF) - Get Report peaked in July and turned lower. Prices could bounce in the short-run, but the charts and indicators are still pointed downward.
While CF has not been in a downtrend for a long time, it is telling that it is close to its lows when the major averages are near their highs for the year. See chart above. When the stock market took off in early October, CF could only rally to the underside of its declining 50-day moving average and stopped short of resistance beginning around $55. Right now there are no bullish divergences that might foreshadow a rally in CF.
This longer-term chart of CF, above, shows that the 40-week moving average is starting to point lower and there is no bullish divergence between price and momentum on this time frame. CF could gradually move to the next round number of $40.
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 19.4%. 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 19.3% in earnings ($4.27 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 1.25 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.