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.