Piper Jaffray analyst, Brett Wong, is reducing estimates and the price target on CF Industries (NYSE: CF) on lower than expected nutrient pricing due to the oversupplied market conditions that offset lower expected natural gas costs. Despite challenging market conditions, he expects a lift in nutrient pricing heading into the spring application season due to strong demand from light fall ammonia application, farmers finally purchasing product, and increased corn acres. No change to the Overweight rating but the price target drops to $40.

Revenue came in above expectations, but adjusted EPS of $0.76 was below the Street at $0.85. Both overall nutrient volumes and pricing were better than expectations, although pricing was lower y/y as nutrient pricing has been eroding due to global oversupply. Natural gas costs were in-line with expectations, but unrealized mark-to-market nat gas derivative losses weighed on margins.

The analyst is modeling nutrient prices lower nearly 25% y/y in 2016 and mid-30% gross margins to arrive at EPS of $3.10 ($3.68 prior). Nutrient prices should stabilize and show modest single-digit improvement in FY17, expanding margins with relatively flat gas costs, lead to $4.00 in EPS ($4.49 prior).

Using a 10x FY17E multiple, the target price drops to $40 from $45.

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Shares of CF Industries closed at $34.37 yesterday.