UBS Upgrades CF Industries (CF) to Buy; Sees Dividend as Secure Given FCF

(Updated - August 23, 2016 7:46 AM EDT)

UBS upgraded CF Industries (NYSE: CF) from Neutral to Buy with a price target of $28. Analyst John Roberts highlighted the company's attractive balance sheet and cash flow, and he sees its dividend is secure.

"We are upgrading CF to Buy as we believe: 1) that CF will return to positive FCF in 2017 as capex declines to maintenance levels 2) nitrogen prices should stabilize as high cost capacity rationalizes and 3) we think that the dividend (yielding 5.1%) is secure because of a 1.7x FCF coverage in 2017, whereas the market implies that it sees risk to the dividend. As such, we raise our PT to $28 (based on ~9.5x EV/EBITDA) with an implied dividend yield of 4.4%, in line with LYB," said Roberts.

"CF is a near pure-play on U.S. shale gas-based nitrogen fertilizers. Margins are based on an advantage to high coal-based producers in China, a substantial portion of which are reported to be operating below cash mfg. costs. These high cost producers are closing capacity as new low-cost capacity ramps, & no new capacity is underway for startup after 2017. CF has ~$2B of cash on hand, & ~$0.7B expected tax refund in 2017. We believe the dividend is secure and at ~5.1% div yield (vs <2% on average for chems)," added the analyst.

For an analyst ratings summary and ratings history on CF Industries click here. For more ratings news on CF Industries click here.

Shares of CF Industries closed at $23.69 yesterday.

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