On Thursday, Piper Sandler adjusted its stance on CF Industries (NYSE:NYSE:CF), moving from a Neutral to an Underweight rating. The firm also revised the price target to $82.00, a decrease from the previous $87.00.
The downgrade is attributed to a negative outlook on grain supply and demand dynamics, which are anticipated to suppress nutrient pricing in the near future.
Piper Sandler indicated that while CF Industries is expected to maintain robust cash flow, enabling the completion of their share repurchase program, and benefit from lower natural gas costs, these positive factors are overshadowed by broader macroeconomic concerns. The firm anticipates these issues to exert a significant influence as the market progresses into 2025.
The firm has lowered its forecast for CF Industries' EBITDA for the fiscal year 2025 from $2.48 billion to $2.05 billion, a projection that falls notably below the consensus estimates. This revision is based on the expectation that a large crop yield in 2024 will have a substantial impact on planting and nutrient demand the following year.
The new price target of $82.00 is derived from a 9.4 times enterprise value to forecasted EBITDA for fiscal year 2025, which assumes an EBITDA of $2.05 billion, a net debt of $936 million, minority interest of $2.7 billion, and 191 million shares outstanding.
This multiple has increased from 8.1 times, reflecting a more bearish view as estimates for 2025 move further below mid-cycle levels. Piper Sandler's evaluation suggests caution for investors as CF Industries navigates through the changing agricultural market conditions.
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