Cowen Upgrades CF Industries, Intrepid Potash, Says Agrium, Mosaic Best Positioned

• CF Industries Holdings, Inc. CF shares are down 18 percent since July 14, while shares of Intrepid Potash, Inc. IPI have plummeted 43 percent.
• Cowen and Co’s Charles Neivert upgraded the ratings on both the companies from Underperform to Market Perform.
• While upgrading the view on the Ag industry from Cautious to Neutral, Neivert said that the ratings for the companies had been revised largely based on valuation.

Analyst Charles Neivert believes that investors have responded to most of the negative industry data, which is now reflected in the shares, providing a “better risk/ reward balance.” Grain prices are not expected to decline further due to planting adjustments and the easing of new plant announcements.

Neivert added, however, that there were no clear catalyst to drive a rebound in earnings, which could reach trough levels next year.

CF Industries

While upgrading the rating on CF Industries, Neivert has raised the price target from $52 to $53.

In the report Cowen and Co noted, “It has been difficult to zero in on earnings for CF given the number of deals that are now in progress, but we focus on some basic issues that make us hesitate to go beyond Market Perform, and still worry us going forward.”

CF Industries is now focusing on nitrogen fertilizer, with some business being generated from industrial nitrogen uses and methanol. Despite the nat gas market being very favorable, the company’s margins are contracting. While terming this as a concern area, the analyst said that the compression “is not yet complete.”

Moreover, over the next 2 to 3 years, capacity will be coming online on a global basis, which would “undermine the industry pricing structure,” Neivert stated. He added, “While more downside is possible, we see little in the way of catalysts to drive substantial upside.”

Intrepid Potash

While raising the rating on Intrepid Potash, Neivert has reduced the price target from $10 to $7.

The analyst pointed out that there were two major issues facing this company. First, Intrepid Potash’s volume could be impacted by new imports and growing capacity in Saskatchewan. “Second, despite cost improving capex, the company remains a high cost producer in an increasingly competitive marketplace.”

The EBITDA estimate for 2016 has been reduced from $116 million to $90 million.