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CF Industries shares rise nearly 5 percent on UBS upgrade

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CF Industries shares rose nearly 5 percent Tuesday after UBS analysts upgraded the stock and increased their 12-month price target for the company.

UBS upgraded the nitrogen fertilizer manufacturer and distributor to a 'buy' rating from 'neutral.' Additionally, the firm raised its 12-month price target to $28 from $22.

John Roberts, a UBS analyst, listed three primary drivers for CF's upgrade in a note released on Tuesday.

The upgrade was based on the following expectations for the company in 2017:

  • Return to positive free cash flow due to a decline in capital expenditures
  • Stabilization of nitrogen prices
  • Secured dividend yield because of a 1.7x free cash flow coverage

The price target of $28 "equates to a 4.4 percent dividend yield, equivalent to Lyondellbasell," Roberts said in the note. "Like CF, LYB's U.S. gas-based production also faces high cost coal-to-olefins Chinese competitors, and both have high quality balance sheets. Near-term LYB is buying back stock, while CF is pursing growth."

Roberts said UBS views the long-term outlooks for both companies as "comparable."

Shares of CF Industries have declined about 39 percent this year.