CF Industries

Methodology

CF Industries' nitrogen fertilizer production is highly cyclical with earnings tied to crop prices, planting decisions, and natural gas input costs. The company's North American production benefits from cheap natural gas but faces global ammonia price competition. This calculation is problematic for CF unless using normalized mid-cycle fertilizer prices and gas costs, as spot commodity conditions create misleading growth projections that reverse quickly with agricultural cycles.

Methodology

CF Industries' PEG ratio swings wildly with fertilizer cycles, often appearing cheapest at peak earnings when growth is high but unsustainable. The company rarely maintains high growth beyond favorable crop economics and tight global nitrogen supply. For fertilizer producers like CF, valuation based on mid-cycle earnings power, cost position on the global curve, and long-term nitrogen demand provides better insight than volatile PEG ratios.

Methodology

CF Industries' dividend and capital return vary with fertilizer market conditions, with management returning excess cash during strong periods while maintaining flexibility. The company's commitment to shareholder returns depends on sustained favorable nitrogen economics. PEGY has limited utility for CF given the cyclical nature of both earnings and capital returns—focus instead on free cash flow generation at various fertilizer price scenarios.