Nutrien vs. CF Industries: Which Agricultural Stock is a Better Buy?

Nutrien Ltd. (NTR) and CF Industries Holdings, Inc. (CF) are two prominent players in the global agricultural inputs industry. NTR is a Canada-based provider of crop inputs and services, operating through four segments — Retail Ag Solutions; Potash; Nitrogen; and Phosphate. It distributes crop nutrients, crop protection products, seeds, and merchandise products through approximately 2,000 retail locations. On the other hand, CF manufactures and sells hydrogen and nitrogen products for clean energy, fertilizer, emissions reduction, and other industrial applications. The company primarily serves cooperatives, independent fertilizer distributors, traders, wholesalers, and industrial users.

High inflation and supply chain constraints have made food, energy, and commodity prices surge lately. Moreover, the rising consumer spending this festive season has been driving the demand for fertilizers and crop nutrients to get better crop quality and yield. However, rising natural gas prices (a key ingredient in making nitrogen-based fertilizers) have affected crop nutrient production. As fertilizer prices and supply shortages are expected to continue in 2022 and some countries have stopped exporting their crop nutrients to support their domestic availability, companies are expected to deliver better returns in the coming months. The global fertilizer market is expected to grow at a 5% CAGR and reach $323.38 million by 2028. So, both NTR and CF should benefit.

While NTR gained 37% in price over the past year, CF has surged 55.3%. CF is a clear winner with 30.3% gains versus NTR’s 10.4% in terms of their past three months’ performance. But which of these stocks is a better pick right now? Let us find out.

Latest Developments

On July 29, 2021, NTR and EXMAR, an independent shipping group that serves the international gas and oil industry, signed a collaboration agreement to develop and build a low-carbon, ammonia-fueled vessel jointly. The companies expect deep decarbonization of the maritime industry to be achieved before 2030.

On October 11, 2021, CF announced that its Billingham Complex in the United Kingdom will continue to operate through at least January 2022 after its UK subsidiary reached carbon dioxide (CO2) pricing and offtake agreements with its industrial gas customers in the country. CF’s Billingham Complex produces 750 tonnes of CO2 per day for commercial use as a byproduct of the ammonia production process. Therefore, by the end of January 2022, UK government and industrial gas customers are expected to develop robust alternative sources of CO2 as part of a long-term solution for meeting demand in the country. CF is also looking forward to supporting sustainable and competitive UK ammonia and fertilizer production.

Recent Financial Results

NTR’s net sales for the fiscal third quarter, ended September 30, 2021, increased 44.3% year-over-year to $5.80 billion. The company’s gross profit came in at $2.17 billion, up 112.5% from the prior-year period. Its adjusted EBITDA came in at $1.64 billion, representing a 145.1% rise from its year-ago period. NTR’s net earnings came in at $726 million for the quarter, compared to a loss of $587 million from the prior-year period. Its EPS came in at $1.25, versus a $1.03 loss per share in the year-ago period. The company had $443 million in cash and equivalents as of September 30, 2021.

For the fiscal third quarter ended September 30, 2021, CF’s net sales increased 60.8% year-over-year to $1.36 billion. The company’s gross profit came in at $440 million for the quarter, indicating a 430.1% rise from the prior-year period. Its operating loss came in at $97 million, compared to operating earnings of $40 million in the year-ago period. While its net loss increased 560.7% year-over-year to $185 million, its loss per share increased 561.5% to $0.86. The company had $757 million in cash and cash equivalents as of September 30, 2021.

Past and Expected Financial Performance

NTR’s revenue and net income have grown at CAGRs of 13.8% and 97.4%, respectively, over the past three years. The company’s total assets have increased at a CAGR of 2.2% over the past three years.

Analysts expect NTR’s EPS to grow 229.9% year-over-year in the current year and 27.8% next year. Its revenue is expected to improve 30.9% year-over-year in the current year and 8.9% next year. Its EPS is expected to grow at a rate of 33% per annum over the next five years.

In comparison, CF’s revenue increased at a CAGR of 5.1% over the past three years. The company’s net income and total assets have decreased at CAGRs of 24.9% and 3.7%, respectively, over the past three years.

CF’s EPS is expected to increase 185.6% year-over-year in the current year and 75.3% next year. The stock’s revenue is expected to grow 47.7% year-over-year in the current year and 24.4% next year. CF’s EPS is estimated to grow at a 62.7% rate per annum over the next five years.  

Valuation

In terms of forward EV/Sales, CF is currently trading at 3.01x, which is 56% higher than NTR’s 1.93x. In terms of forward EV/EBITDA, NTR’s 7.26x compares with CF’s 7.72x.

Profitability

NTR’s trailing-12-month revenue is almost 4.6 times CF’s. NTR is also more profitable, with a 31.2% gross profit margin versus CF’s 27.7%.

Furthermore, NTR’s net income margin and ROE of 9.6% and 10% compare with CF’s 5.9% and 9.4%, respectively.

POWR Ratings

Both CF and NTR have an overall B grade, which translates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, each weighted to an optimal degree.  

Both CF and NTR have a Momentum grade of B, consistent with their impressive price gains over the past year. NTR has delivered 7.7% price returns over the past six months, while CF surged 7.6% over the past six months.

NTR has a B grade for Value, which is in sync with its lower-than-industry valuation ratios. NTR has a forward Price/Book ratio of 1.58, 31.9% lower than the industry average of 2.32. CF’s C grade for Value is consistent with its slightly higher valuation ratios. CF’s 3.62 forward Price/Book multiple is 55.8% higher than the industry average of 2.32.

Of the 30 stocks in the Agriculture industry, CF is ranked #9, while NTR is ranked #3.

Beyond what we have stated above, our POWR Ratings system has also rated NTR and CF for Growth, Stability, Quality, and Sentiment. Get all CF ratings here. Also, click here to see the additional POWR Ratings for NTR.

The Winner

NTR and CF are expected to benefit substantially due to the rising demand for fertilizers. However, higher profit margins and lower valuation make NTR a better buy here.

Our research shows that the odds of success increase if one bets on stocks with an Overall POWR Rating of Buy or Strong Buy.  Click here to access the top-rated stocks in the Agriculture industry.

NTR shares were trading at $69.14 per share on Monday afternoon, up $1.61 (+2.38%). Year-to-date, NTR has gained 45.37%, versus a 24.01% rise in the benchmark S&P 500 index during the same period.

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.

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